Commissioner's decision to apply law "retrospectively" not reviewable - Macquarie
04 Sep 2013
The Federal Court (Edmonds J) has dismissed the taxpayers' applications for various forms of relief, including an application for review, under the Administrative Decisions (Judicial Review) Act 1997 ("the ADJR Act"), 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 ("OBU") expenses to the taxpayers in the 2006 income year.
The taxpayers argued that the Decision was contrary to the terms of Practice Statement PS LA 2011/27.
PS LA 2011/27 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. It states that it must be followed in any circumstance where a tax officer applies the ATO view of the law.
PS LA 2011/27 was developed in response to the recommendations of the Inspector-General of Taxation in the report "Review into delayed or changed Australian Taxation Office views on significant issues" released in March 2010.
In particular, PS LA 2011/27 states, at paras 21 to 23:
"21. The Commissioner cannot use the powers of general administration to accept non-compliance with the law. However, as part of the duty of good management, the Commissioner can decide not to undertake compliance action on a particular issue for prior years or periods. Law Administration Practice Statement PS LA 2009/4 discusses the exercise of the Commissioner’s powers of general administration. It includes a range of factors the Commissioner will take into account in deciding whether to undertake compliance action in relation to prior years or periods.
22. This practice statement does not replace or modify PS LA 2009/4. One of the factors mentioned at paragraph 23 of Appendix B of PS LA 2009/4 is whether the ATO has contributed to non-compliance. This practice statement amplifies and clarifies this specific factor and explains the practices and procedures to be followed.
23. The ATO will not take action to apply its view of the law in past years or periods where it is considered appropriate not to do so after having regard to the approach and factors outlined in this practice statement. This is so regardless of the other factors listed in PS LA 2009/4."
The taxpayers argued that the subject matter of the Decision was one in which the ATO had contributed to non-compliance by expressing either conflicting or non-conclusive views in the past and, therefore, it would be unreasonable to apply the views upon which the Decision was based retrospectively in determining the taxpayers' liability to tax in the 2006 income year.
Edmonds J reviewed earlier cases which have considered the requirement that a decision that is capable of review under the ADJR Act must be one that has been made "under an enactment". The cases have explained that this means that, firstly, the decision is expressly or impliedly required or authorised by the enactment and, secondly, the decision confers, alters or otherwise affects legal rights or obligations and derives that legal effect from the enactment.
Edmonds J said, at paras 46 and 47:
"In the present case...PS LA 2011/27 is not an exercise of any delegated law-making power and cannot be described as an 'enactment'. The 1936 Act does not expressly or impliedly require or authorise the making of PS LA 2011/27; nor does it require or authorise the making of a decision about whether to apply a 'view of the law' to past events. This is so even if a decision of that kind is capable of being made by the Commissioner in the course of the 'general administration' of the Act...
Further, in the present case...the decision complained about is not one that has any direct effect on legal rights or obligations. The decision does not, and as a matter of law could not, affect the operation of relevant substantive taxing provisions or the existence of power to take action under the Act (such as issuing an amended assessment). Legal rights or obligations would be affected only if and when the decision came to be reflected in some specific action purporting to have statutory force."
Accordingly, the Decision was not subject to review, and the Commissioner's objection to competency of the taxpayers' application for review was upheld.
Although sufficient to dispose of the matter, Edmonds J went on to consider that the Decision was not made in the process of assessing tax, thus rejecting an alternative ground of the Commissioner that the Decision was not a reviewable decision under the ADJR Act.
Finally, Edmonds J held that the taxpayers had no reasonable prospect of obtaining the final relief they sought and summarily dismissed the proceedings pursuant to s 31A(2) of the Federal Court of Australia Act 1976.
Macquarie Bank Limited v FCT  FCA 887 (Federal Court, Edmonds J, 3 September 2013).