The strength of the Commissioner of Taxation’s (Commissioner) hand in raising taxation assessments, and the difficulties taxpayers face in challenging a taxation assessment other than under Part IVC of the Taxation Administration Act 1953 (Administration Act) has again been illustrated in the Federal Court decision of Chhua v Commissioner of Taxation [2017] FCA 1127 (Chhua).
In Chhua, the taxpayer challenged the validity of an assessment under section 39B of the Judiciary Act 1903 alleging jurisdictional error (an error of law) in the opinion of fraud or evasion formed by the Commissioner (that formed the basis for the amended assessment outside the usual period of review) and sought to apply for orders quashing the Commissioner’s opinion and quashing the amended assessments as invalid for lack of power, absent the valid opinion (The taxpayer was also seeking to challenge his liability on the substantive tax issues as assessed in proceedings in the Administrative Appeals Tribunal brought under Part IVC of the Administration Act).
The Commissioner’s position was the facts as alleged by the taxpayer could not amount to errors in the assessment and would, at most, only amount to non-compliance with the provisions of the Income Tax Assessment Act 1936 (1936 Act). The Commissioner noted section 175 of the 1936 Act states that the validity of an assessment is not affected by non-compliance with provisions of the Tax Acts and that it is only where the assessment is not an ‘assessment’ under section 175 will a jurisdictional error arise. The Commissioner’s position was the taxpayer had failed to make out this allegation.
Section 175 of the 1936 Act provides:
“The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.”
The Court noted the taxpayer’s contention that section 175 did not apply in this case to protect the amended assessments from challenge as section 175 does not protect an assessment from challenge due to some defect or irregularity in the making of the assessment.
Referring to the most recent High Court authority on the scope for judicial review of an assessment for jurisdictional error under section 39B, FCT v Futuris Corporation Ltd [2008] HCA 32 (Futuris), the Court noted that where section 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract remedy under section 39B. Where there is something that answers the statutory description of an ‘assessment’ then the assessment is not affected by failure to comply with any provision of the Tax Acts and a taxpayer dissatisfied with the assessment may only object to the assessment in the manner set out in Part IVC of the Administration Act but with the burden of proof on the taxpayer as provided for in sections 14ZZK and 14ZZO of that Act.
Only where there is not an ‘assessment’, such as where the assessment is tentative or provisional or the product of conscious maladministration could a taxpayer make out a challenge to the validity of the assessment under section 175. The Court noted the taxpayer had not sought to make out these allegations and, regardless, the material facts alleged would not make out a proper basis for making either allegation. The Court found that the taxpayer’s contention that finding errors in the making by the Commissioner of his opinion of fraud and evasion would not nullify the assessments; Futuris being authority that errors in the bona fide exercise of the assessment power are protected from jurisdictional error under section 39B by section 175.
The Court said if the taxpayer wished to challenge the condition precedent to the exercise of the amendment power, being the formation of the opinion by the Commissioner of fraud and evasion, it was open for the taxpayer to do so through the Part IVC process.
Chhua illustrates the difficulties that taxpayers face in challenging the validity of a taxation assessment other than under Part IVC. Unless an assessment is tentative or provisional, or the product of conscious maladministration then the taxpayer must challenge under Part IVC with the onus of proof being on the taxpayer.
Sladen Legal’s tax practice is highly experienced in resolving tax disputes including under Part IVC.
To discuss this further or for more information please contact:
Neil Brydges
Special Counsel | Accredited specialist in Tax Law
Sladen Legal
M +61 407 821 157 | T +61 3 9611 0176
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
nbrydges@sladen.com.au
Sam Campbell
Associate / Business Law
Sladen Legal
M +61 423 515 454 | T +61 3 9611 0135
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
scampbell@sladen.com.au
