Decisions, decisions, decisions: when does the Commissioner make a ‘decision'?

The recent Full Federal Court decision of Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79 dismissing the taxpayer’s appeal, considered whether a letter (the ATO Letter) from the Australian Taxation Office (ATO) purportedly remitting the taxpayer’s general Interest charge (GIC) amounted to a ‘decision’ by the Commissioner of Taxation (Commissioner).  This case raises interesting questions about when the Commissioner makes a decision.  

The taxpayer applied for remission of GIC and to enter into a payment arrangement in respect of his outstanding substantive taxation liabilities of $1.17 million. An ATO officer and delegate of the Commissioner, entered information into a computer-based template that automatically generated the ATO Letter. Without checking or reviewing the contents of the ATO Letter, the ATO officer sent it to the taxpayer. Relevantly, the ATO Letter, headed “Payment arrangement for your Income Tax Account debt”, read:

Thank you for your recent promise to pay your outstanding account. We agree to accept a lump sum payment of $839,115.43 on or by 30 January 2015.

This payout figure is inclusive of an estimated general interest charge (GIC) amount calculated to 30 January 2015. Amounts of GIC are tax deductible in the year in which they are incurred. 

At first instance before the Federal Court, the taxpayer argued, unsuccessfully, that the ATO Letter constituted or manifested a ‘decision’ by the Commissioner to remit GIC up to the date of the letter if the lump sum payment was made. The taxpayer relied on the ATO Letter and produced the letter to his bank and the bank relying on the letter provided finance to the taxpayer who made the lump sum payment on the agreed date.  The Commissioner argued his intention was that the primary taxation liability was required to be paid in full and he would consider the taxpayer’s request for remission of GIC.

The Full Federal Court, by majority, held the ATO Letter did not amount to a valid ‘decision’ made by the Commissioner. The majority found for a decision to be valid two elements had to be satisfied:

  1. mental element: there must be a ‘mental process’ of reaching the decision; and
  2. objective manifestation: there must be an objective manifestation of that decision.

The majority held that the first element, being the mental process of the ATO officer, was absent on the facts of this case.

In his evidence, the ATO officer said he had never intended the letter to include the phrase “this payout figure is inclusive of an estimated general interest charge…”. File notes of telephone conversations with the taxpayer supported this intention prior to the ATO Letter being prepared together with ATO’s ‘Statements of Account’ issued in the months following which showed GIC continuing to accrue.

The majority acknowledged that:

  1. on the natural reading of the ATO Letter, in the context in which it was written, the Commissioner agreed to accept a payment of the lump sum amount in full discharge of the taxpayer’s primary tax and GIC liabilities;
  2. the Court’s decision may be perceived as unfair if the Commissioner could go back on what was said in the ATO Letter.

Despite this unfairness, the majority held that because the ATO officer did not undertake the necessary mental process in reaching the decision to remit the GIC, despite there being an objective manifestation of a decision (being the ATO Letter itself), the ATO Letter did not amount to a valid decision having been made on behalf of the Commissioner.  In the majority’s view, any possible ‘administrative uncertainty’ was outweighed by the small likelihood of a similar data entry error being made by the ATO in relation to other decisions in the future.                                                                

This case clearly raises issues for taxpayers who are dealing with the ATO as it appears that taxpayers may not be able to rely in every case on written correspondence issued by the ATO purporting to convey a ‘decision’. The dissenting judge in the case, Justice Kerr, makes some interesting comments on this point.

Kerr J highlights automation is becoming the norm in society and automated systems being adopted by many Australian government departments for bulk decision making. This automation process or use of machines and technology extends to many different industries. In this instance, Kerr J says “machines make contracts with machines”.

In a very practical judgement, Kerr J states that it would undermine fundamental principles of administrative law if a decision maker could renounce as ‘not a decision’ something he or she has manifested in writing simply by asserting that their subjective mental process did not align to that physical act or document. Kerr J contends that where the subjective mental process is different to the manifested act or document, it should not cease to be a decision for that reason.

Kerr J also raises the artificiality of the majority judgement that effectively allows the ATO to disregard part of the ATO Letter (the GIC remission) as not a decision of the Commissioner and the other part (the payment arrangement) to be regarded as a binding decision.

The case raises questions about reliance by taxpayers on decisions conveyed on behalf of the Commissioner particularly with the large-scale automation of correspondence issued and sent by the ATO. This decision opens the door to the Commissioner arguing in other matters there may be a failure in the mental process in decision making involving automated correspondence. 

To discuss this article, or for any further information about the resolution of tax disputes please contact:

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

Kelvin Yuen
Sladen Legal
T +61 3 9611 0177
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia