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30 Oct 13 Commissioner not bound to follow earlier view of law - Macquarie Bank

The Full Court of the Federal Court (Middleton, Pagone and Davies JJ) has refused the taxpayer, Macquarie Bank Limited, leave to appeal from the decision of Edmonds J in Macquarie Bank Limited v FCT [2013] FCA 887 (3 September 2013).

Edmonds J dismissed the taxpayers' applications for various forms of relief, including an application for review, under the Administrative Decisions (Judicial Review) Act 1997, of a decision ("the Decision") made by the Commissioner in a letter dated 17 January 2013, in which he informed the taxpayers that he would apply his view of the law on the allocation of Offshore Banking Unit expenses to the taxpayers in the 2006 income year. The taxpayers argued that the Decision was contrary to a view of the law that the Commissioner had previously held on this matter and the Decision was therefore inconsistent with the terms of Practice Statement PS LA 2011/27.

The Full Court noted at para 4:

"The practice statement relied upon by Macquarie 'outlines procedures to be followed and the factors to be considered by tax officers in relation to any circumstance in which the ATO is considering applying its view of the law' with retrospective effect. The practice statement also states that it 'must be followed in any circumstance where a tax officer applies the ATO view of the law'. Macquarie contends that the Commissioner proposes to assess Macquarie by applying the ATO view of the law both prospectively and retrospectively but without following the procedures or acting in accordance with the practice statement. Macquarie contends that the Commissioner has a discretion about whether to consider reassessing it and that, in effect, that discretion must be exercised in conformity with the practice statement whatever might otherwise be the application of the law to the taxpayer in question."

Edmonds J held that "the practice statement did not, and could not, operate to prevent the application of the ATO’s view of the law if it be correct. The correctness of any view adopted by the ATO in raising an assessment, and its legal effect upon the making of an assessment (or re-assessment), could be challenged in Part IVC proceedings under the [Taxation Administration Act 1953] as could any binding ruling, but the practice statement itself could not prevent, or authorise, the Commissioner from acting upon a view of the law when raising an assessment or re-assessment," per the Full Court at para 5.

The Full Court held that Edmonds J was correct in dismissing the taxpayer's application, as its claim had no prospect of success or, alternatively, had no utility. The Full Court said, at para 11:

"The power of the general administration of tax legislation given to the Commissioner, by provisions like s 8 of the 1936 Act, s 356-5 of schedule 1 of the 1953 Act and s 44 of the Financial Management and Accountability Act 1997 (Cth) (‘1997 Act’), does not permit the Commissioner to dispense with the operation of the law. The power of general administration in such provisions is not a discretion to modify, or which modifies, the liability to tax imposed by the statute: the power in such provision for general administration (coupled with whatever discretion they may contain) affects the administration of the Acts and not the Commissioner’s duty to act according to law and to assess taxpayers to the correct amount of liability imposed by the legislation. It may be accepted for the purposes of argument, as was argued for Macquarie, that the Commissioner’s power of general administration, given by provisions like s 8 of the 1936 Act, s 356-5 of schedule 1 of the 1953 Act and s 44 of the 1997 Act, gives him a “discretion” in making compliance decisions to reassess and “in relation to the evidence he is willing to accept to ascertain the taxable facts” (although the latter may be doubtful or, at least, requires heavy qualification), and (b) permits the Commissioner “to decline to consider re-assessing, or to decline to in fact re-assess a taxpayer”; but no such “discretion” can be exercised to fetter an assessment or re-assessment when the Commissioner has formed the view that the statute imposes a liability contrary to some view he may previously have had, or had, accepted. His duty then is to apply the law as he understands it to be...The practice statement may set out the Commissioner’s position about the circumstances in which he will apply retrospectively a different view about the operation of the law, but any failure by the Commissioner to comply with his view in the practice statement will not alter the taxpayer’s liability upon an assessment or the Commissioner’s duty to assess upon the correct view of the law (subject, of course, to such limitations as may arise from res judicata, statutory time limitations, and other statutory qualifications – such as to give effect to binding rulings). Whatever the sanction may be for the Commissioner not complying with the practice statement, it is not to relieve the taxpayer of the liability correctly imposed by the Act, and by its correct application, and it will not prevent the Commissioner from raising an assessment or a re-assessment of that liability in accordance with his duty to apply the law."

Macquarie Bank Limited v FCT [2013] FCAFC 119 (Full Federal Court; Middleton, Pagone and Davies JJ; 24 October 2013).


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