Late Objection Appeal Allowed
In Zimmerman v Commissioner for ACT Revenue (Administrative Review) 2017 ACAT 75 the ACT Civil and Administrative Tribunal (Tribunal) allowed a Taxpayer’s appeal against a decision to refuse to accept the applicant’s out of time objection to the land tax assessments issued in December 2014 (Objection) pursuant to section 103 of the Taxation Administration Act 1999 (TAA).
The issue was whether the Tribunal should exercise its discretion to permit the Taxpayer to lodge an objection out of time pursuant to section 103 of the TAA. The Taxpayer and her former husband jointly acquired a property in Hughes in the ACT (Property) in 1977. The Taxpayer and her husband later separated and she became the sole owner of the Property. The Taxpayer moved to Darwin in 2004 and left her three adult children residing in the Property. The Taxpayer continued to return to the home at least every two years and she continued to pay the mortgage and the rates on the Property.
The Taxpayer continued to return to the home at least every two years and she continued to pay the mortgage and the rates on the Property. In 2009, the Taxpayer’s son was the only remaining child who resided at the property. At this time, he started paying $1,000 per fortnight rent. In October 2014, the Commissioner sought clarification from the counsellor in relation to this rental status of the Property and flagged the Taxpayer’s requirement to notify the Commissioner of its rental status.
In December 2014, the Commissioner assessed the Taxpayer as liable to pay land tax for the period 1 July 2009 to 31 December 2014 in the total sum of $31,239.90 plus interest of $11,026.22. The Commissioner issued a total of 22 assessment notices covering that period by posting them to the Property as the current postal address. The Taxpayer says she did not receive these notices.
On 19 March 2015, by email, the Commissioner notified the total arrears of land tax owed by the Taxpayer and also requested an up-to-date postal address. By email, the Taxpayer provided a postal address in Darwin.
In April 2015, the Commissioner posted a land tax assessment notice for $46,198.43 to the Taxpayer at her Darwin address (Assessment). However, the Taxpayer only received the notice by email sometime after.
Following correspondence between the two parties in 2015, the Taxpayer submitted an out of time objection to the Assessment on 23 May 2016 after being alerted of her rights to object in March 2016. On 9 September 2016, the Commissioner declined to exercise its discretion to permit the Taxpayer to lodge the Objection out of time.
On review, the Commissioner’s decision rejecting the out of time Objection was affirmed. The Taxpayer sought review of this decision by the Tribunal.
Having regard to the principles set out by Justice Wilcox in Hunter Valley Developments v Cohen  3 FCR 344, the Tribunal accepted that:
- the Taxpayer’s circumstances were exceptional and reached the view that the applicant had disclosed an adequate explanation for the delay of 13 months, including participating as a victim witness before a Royal Commission into Institutional Responses to Child Sexual Abuse
- the Commissioner would not be unfairly prejudiced by granting the applicant an extension of time and
- the matter had prima facie merit to proceed on the substantive issue of whether there should, in fact, be a liability.
Therefore, the appeal was allowed.
This case demonstrates the strict procedural mechanisms of a Revenue Office in dealing with taxpayers that may wish to appeal an assessment. The Revenue Office failed to take into consideration the compelling circumstances of the Taxpayer. The Revenue Office was erroneously quick to limit the objection rights of the taxpayer for delay without regard to all of the circumstances.
Subpoena to ATO to produce documents set aside
In Commissioner of Taxation v Tamarama Fresh Juices Australia Pty Ltd  FCAFC 154 the Full Federal Court allowed the Commissioner’s appeal and ordered that a subpoena to the ATO to produce documents be set aside.
This was an appeal from from the Federal Court decision of Foster J in Binqld Finances Pty Ltd (In Liq) v Tamarama Fresh Juices Australia Pty Limited (Binqld). In Binqld, the liquidators of several Nudie companies successfully argued that certain directors had breached their fiduciary duty by engaging in a scheme to evade tax, thereby resulting in the liquidators incurring compensable losses in outstanding tax liabilities in winding up the company (in circumstances where the Commissioner was the only creditor of the companies). The Commissioner appealed.
The Full Federal Court said the issue before the primary judge was whether the Commissioner be required by subpoena to disclose the information on the basis that disclosure ‘was necessary… for the purpose of carrying into effect the provisions of taxation law’ within the meaning of s. 355-75 of Sch. 1 to the Taxation Administration Act 1999 (Cth) (TAA). If disclosure was not necessary, the Court said the subpoena had to be set aside.
The Court concluded that the disclosure required by the subpoena cannot be said to be ‘necessary…for the purpose of carrying into effect the provisions of a taxation law’ merely because the Commissioner is the only external creditor of the plaintiff companies.
Commissioners’ discretion to determine fixed entitlements and fixed trusts
On 13 September 2017, the ATO issued a final version of Practical Compliance Guideline 2016/16 (Guideline) which sets out the factors which the Commissioner will consider when deciding to exercise his discretion to treat an interest in the income or capital of a trust as being a “fixed entitlement” under sub-section 272-5(3) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).
Whether an interest in a trust is a fixed entitlement is highly relevant for the a number of tax issues particularly the trust loss rules.
Under the legislation, entitlements will be fixed where:
- the interest is vested and indefeasible
- the interest is capable of measurement
- the interest cannot be defeated by the actions of one or more persons or by the occurrence of subsequent events.
However, in practice it may be difficult for many trusts to satisfy the definition of ‘fixed trust’, so the Commissioner’s discretion is important.
In the Guideline, the Commissioner states that some of the factors that will influence him in making a decision to exercise his discretion will include:
- the particular circumstances in which the interest is capable of not vesting or being defeated
- the practical likelihood of the interest not vesting or being defeated
- the nature of the trust and interests in the trust and
- any other relevant factors, such as the purpose for which the discretion is being used (including whether it is used to obtain a tax benefit).
Helpfully, the Guideline provides a number of examples which illustrate how the Commissioner’s will apply his discretion in various scenarios. Also, in setting out the factors which will influence the Commissioner’s decision to apply his discretion, the Guideline gives a weighting to each factor and it will have a favourable, unfavourable or neutral impact on the Commissioner’s decision to exercise his discretion.
The Guideline brings some additional clarity to a question which has been the subject of much uncertainty and risk for practitioners. While the Guideline is a useful resource, it is not a substitute for a detailed and analytical review of the trust deed.
Finally, for taxpayers who have elected to apply the AMIT regime, these guidelines will not be relevant as an AMIT is deemed to be a fixed trust for the purpose of the trust loss provisions. It may, however, be relevant in the period prior to an AMIT election being made.
Updated Fraud or Evasion Practice Statement to be released
The ATO is updating Practice Statement Law Administration (PSLA 2008/6) which was arguably issued in March 2008 for the purpose of providing instructions to its administrative staff on how to deal with taxpayers that have committed or are suspected of having committed fraud or evasion.
PSLA 2008/6 considers fraud or evasion in the context of the unlimited time limit allowed under the law for the Commissioner to amend assessments (or to seek the payment of indirect tax which has been underpaid) due to fraud or evasion.
The Practice Statement also states that there will be an ATO fraud/evasion technical panel arrangement which will provide advice bearing upon the operation of PSLA2008/6.
The ATO is planning to issue the updated Practice Statement in October 2017.
Taxi definition to include ‘Uber’
On 27 September 2017, the ATO released Discussion Paper TDP 2017/2 – FBT – Definition of Taxi (Discussion Paper). The paper considers the definition of ‘taxi’ contained in the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act) and the exemption from fringe benefits tax (FBT) for taxi travel undertaken to or from work due to illness. The ATO proposes that ‘taxi’ will include Uber.
Under section 58Z of the FBT Act, FBT does not apply to taxi benefits or travel undertaken by their employees in a taxi to or from work due to illness of the employee.
The ordinary meaning of ‘taxi’ has recently been considered by the Federal Court in Uber B.V. v. Commissioner of Taxation  FCA 110 (Uber). The Court found:
‘…that the ordinary meaning of the word “taxi” is a vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter. Following this case and certain proposed changes to licensing regulations in a number of states and territories, the ATO announced that it considers it is appropriate to ‘review our interpretation of the definition of ‘taxi’ contained in the FBT Act’.
The ATO proposes to adapt the Uber case definition, thus expanding the exemption.
This article was written with the assistance of Lucy Wilcox, Law Graduate.