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21 Dec 10 Assessments based on stolen information held to be lawful - Denlay

The Federal Court (Logan J) has dismissed applications, made under s 39B of the Judiciary Act 1903, by two taxpayers (husband and wife), seeking to have quashed amended assessments issued by the Commissioner. The amended assessments were based on information obtained by ATO officers whilst overseas from a former employee (Mr Kieber) of the LGT Group in Liechtenstein, who had unlawfully copied the information in violation of Liechtenstein privacy laws.

The receipt, importation and possession of that information by ATO officers was said by the taxpayers to be in contravention of s 400.9 of the Criminal Code 1995 (Cth) (the Criminal Code), as scheduled to the Criminal Code Act 1995 (Cth). On that basis, it was alleged, the Commissioner’s use of the information in the process of assessment was impermissible under ITAA 1936 and constituted conscious maladministration as described in FCT v Futuris Corporation Ltd [2008] HCA 32; (2008) 237 CLR 146, such that each of the amended assessments should be quashed.

The Court rejected the taxpayers' submissions in this regard. His Honour noted that s 400.9 must be read subject to s 10.5 of the Criminal Code, which provides that a person is not criminally responsible for an offence if the conduct constituting the offence is justified or excused by or under a law. His Honour then referred to s 263 ITAA 1936 which, it had been said, “makes lawful that which would otherwise be unlawful” (FCT v Australia and New Zealand Banking Group Ltd [1979] HCA 67; (1977) 143 CLR 499 at 535n  per Mason J). His Honour then said, at para 94:

"What s 263 does is to make lawful conduct which would otherwise be unlawful under Australian law. The potential for a source of information to be abroad casts light upon what Parliament must have intended by the “universal expression” of the access (s 263) and breadth of assessing information base (s 166) stated in the ITAA36 which Parliament intended the Commissioner to enjoy for the purposes of that Act and the ITAA97. For the purposes of Australian law, the Commissioner is intended to enjoy full and free access for the purposes of the ITAA36 and the ITAA97 abroad also. That this expression of Australian parliamentary intent would afford the Commissioner no defence in a foreign court under a foreign law in respect of a trespass is no reason in an Australian court to read down the generality of language of the section in terms of its effect under Australian law. That the information which comes into the Commissioner’s possession may have its origin in a secret numbered account, perhaps protected by foreign secrecy laws or other foreign criminal sanctions is nothing to the point so far as the Commissioner is concerned in the making of an assessment. That is the purpose revealed by considering the width of income which falls for assessment and the intended access and information base Parliament intends the Commissioner to enjoy for the purposes of administering our income tax legislation."

His Honour made an alternative finding at para 96:

"It seems an unlikely intended result, again when one has regard to the breadth of what constitutes assessable income for Australian income tax law, the breadth of access and assessing information base intended and what would or could be the fate of the proceeds if there were a contravention, that Parliament ever intended that s 400.9 would operate in a way that the Commissioner or any other Commonwealth officer would commit a federal offence if he or she received abroad from a foreign source information relevant to the making of an Australian income tax assessment, even in circumstances where it was reasonable to suspect that this information was the proceeds of a foreign indictable offence. Absurd results in the construction of statutes are to be avoided. Were it necessary, and, in light of the conclusion which I have reached having regard to income tax legislation alone it is not, I would on this additional basis find that there was no contravention of s 400.9 proved because that section did not, in the circumstances, have any relevant application to the Commissioner and his officers from the very moment the LGT documents were received from Mr Kieber until the making of the assessment."

The taxpayers' applications were dismissed: Kevin Denlay v FCT [2010] FCA 1434 (Federal Court, Logan J, 17 December 2010).


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