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The Full Federal Court (Edmonds, Middleton and Jagot JJ) has dismissed a taxpayer's application for declaratory and injunctive relief, made under s 39B of the Judiciary Act 1903, in respect of assessments that the taxpayer argued were invalid.

The taxpayer (a club) was incorporated in 1964 with the object, inter alia, of promoting education, sport and culture in the Municipality of Fairfield and the City of Liverpool in New South Wales.

In 2004, the Commissioner ruled that the taxpayer would be exempt from income tax pursuant to Item 9.1(c) of s 50-45 of ITAA 1997 in respect of the years of income ended 30 June 2003 to 30 June 2010 inclusive.

The Commissioner subsequently assessed the taxpayer to tax in respect of the income years ended 30 June 2006 and 30 June 2007 contrary to the private ruling. The Commissioner believed that the ruling no longer applied because of a so-called "amalgamation" with another club in 2005/2006.

The taxpayer lodged objections against the assessments and instituted review proceedings under Part IVC of the Taxation Administration Act 1953.

The taxpayer submitted that the decision of the High Court in FCT v Futuris Corporation Limited [2008] HCA 32; (2008) 237 CLR 146, showed that ss 175 and 177(1) of ITAA 1936 are not engaged where assessments are based on jurisdictional error, either by reason of the Commissioner’s deliberate maladministration or, as in this case, deliberate disregard of the statutory prohibition on raising assessments in a manner contrary to the Ruling.

In particular, the taxpayer submitted that s 170BB of ITAA 1936 and s 357-60 of Sch 1 to the Taxation Administration Act 1953 impose upon the Commissioner an imperative duty or inviolable limitation or restraint with respect to the issue of assessments contrary to a private ruling, such that a failure to comply with the provisions constitutes jurisdictional error.

In rejecting these submissions, the Full Federal Court said, at para 49:

"Neither ss 166 or 169...nor s 166A (deemed assessment), s 167 (default assessment) or s 168 (special assessment) of the 1936 Tax Act, expressly qualify the power or duty to assess by reference to any 'duty', 'limitation' or 'restraint' in the private ruling regime. In addition, no provision of the private ruling regime expressly imposes a duty, limitation or restraint on the ability of the Commissioner to issue an assessment. It is difficult to see how there could be any implication of such duty, limitation or restraint."

The Full Federal Court went on to say, at paras 58 and 59:

"Putting aside the above analysis, we also consider that the applicant has a threshold difficulty to overcome in order to demonstrate invalidity and jurisdictional error. It seems that the applicant accepts that there is a factual issue to be determined whether the private ruling applies in the circumstances of the application. That factual issue is whether the activities of the applicant have materially changed from 2006 from those that existed at the time the Ruling was issued, so that the arrangement or scheme has not been implemented in the way set out in the Ruling...

A private ruling is not intended to bind the Commissioner where the factual position in a particular income year differs from that on which the ruling was based."

The taxpayer's application was dismissed: Mount Pritchard & District Community Club Limited v FCT [2011] FCAFC 129 (Full Federal Court; Edmonds, Middleton and Jagot JJ; 17 October 2011).


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