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Federal Court of Australia |
|
IN THE FEDERAL COURT OF AUSTRALIA | ) |
| ) | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | ) WAG 83 of 1997 |
| ) | |
| GENERAL DIVISION | ) |
|
BETWEEN: | HANK B SCHOKKER
Applicant |
|
AND: | COMMISSIONER OF TAXATION, COMMONWEALTH OF AUSTRALIA
Respondent |
JUDGE(S):
R D NICHOLSON J DATE: 23 JANUARY 1998 PLACE PERTH
On page 15 of the reasons for judgment at line 19 replace `god' with `good'.
Nicholas McGlew
Associate to Justice R D Nicholson
2 February 1998
INCOME TAX - allowable deductions - expenses in allegedly preserving employment conditions by contesting Commissioner's alleged breaches of secrecy - expenses of defending criminal charges - expense of reference book - whether Tribunal in error in not finding to be allowable deductions.
INCOME TAX - secrecy provisions - appeal to Administrative Appeals Tribunal - whether instruction of solicitor and briefing of barrister by Commissioner in breach of secrecy provisions.
Income Tax Assessment Act 1936 (Cth), ss 6(1), 16, 16(1A), 16(2), 16(3), 16(4), 16(4)(c), 263
Taxation Administration Act 1953 (Cth), ss 2, 3C, 3C(1A), 3C(4), 14ZZ, 14ZZA, 15(1)
Crimes Act 1914 (Cth), s 30
Taxation Laws Amendment Act (No 3) 1991 (Cth), s 112
Administrative Appeals Tribunal Act 1975 (Cth), s27(1)
Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth), s 196
Public Service Act 1922 (Cth), s 5
Public Service Regulations
Amalgamated Zinc (De Bavy's) Ltd v FCT [1935] HCA 81; (1935) 54 CLR 295 , referred to
Burton v FCT [1979] FCA 53; 79 ATC 4,318, referred to
Canadian Pacific Tobacco Company Ltd v Stapleton [1952] HCA 32; (1952) 86 CLR 1, referred to
Consolidated Press Holding Ltd & Ors v FCT & Anor 95 ATC 4,231, approved
FCT v Forsyth [1981] HCA 4; 81 ATC 4,157, referred to
FCT v Hatchett [1971] HCA 37; 71 ATC 4,184, referred to
FCT v Nestle Australia Ltd [1986] FCA 368; (1986) 69 ALR 445, referred to
FCT v Rowe 95 ATC 4,691, distinguished
FCT & Ors v The Australia and New Zealand Banking Group; Smorgon & Ors v FCT & Ors [1979] FCA 53; 79 ATC 4,039, referred to
FCT v Wiener 78 ATC 4,006, referred to
Inglis and Anor v FCT 87 ATC 2,037, distinguished
Lunney v Commissioner of Taxation; Hayley v Commissioner of Taxation [1958] HCA 5; (1958) 100 CLR 478, referred to
Ronpibon Tin NL and Tongkah Compound NL v FCT [1949] HCA 15; (1949) 78 CLR 47, referred to
Saunders v FCT [1988] HCA 29; 88 ATC 4,349, referred to
HANK B SCHOKKER v COMMISSIONER OF TAXATION, COMMONWEALTH OF AUSTRALIA
WAG 83 of 1997
R D NICHOLSON J
PERTH
23 JANUARY 1998
GENERAL DISTRIBUTION
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 83 of 1997 |
|
BETWEEN: | HANK B SCHOKKER
Applicant |
|
AND: | COMMISSIONER OF TAXATION
COMMONWEALTH OF AUSTRALIA Respondent |
JUDGE:
r d nicholson j DATE OF ORDER: 23 JANUARY 1998 WHERE MADE: PERTH
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
GENERAL DISTRIBUTION
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 83 of 1997 |
|
BETWEEN: | HANK B SCHOKKER
Applicant |
|
AND: | COMMISSIONER OF TAXATION
COMMONWEALTH OF AUSTRALIA Respondent |
JUDGE:
R d Nicholson J DATE: 26 November 1997 PLACE: perth
The matter proceeded before the Tribunal on the basis of a statement of agreed facts, relevant portions of which read as follows:
"1. The Applicant is a Commonwealth Public Servant in the employ of the Australian Taxation Office ("ATO").
2. In January 1995, the ATO's Special Audit section was informed by the State police that the Applicant was under investigation for fraudulent dealings. On the 21st of March 1995, some 20 criminal charges were laid against each of the Applicant and his wife, alleging fraud in connection with the sale of certain art works. ...The trial of those charges is still pending in the County Court.
3. In February 1996 the Applicant and his wife made application for an indefinite stay of the trials on the basis that they could not afford legal representation and would therefore be unable to obtain a fair trial. The Applicant and his wife appeared in the County Court in March, June and July 1996 in connection with that application before it was heard between 13-17 September 1996. No indefinite stay of those proceedings has been granted. Several minor charges arising from the same incidents have remained pending in the Magistrates Court where they are periodically adjourned.
4. On the 28th of March 1995 and as a result of the criminal charges against him the Applicant was suspended from his employment with the Australian Taxation Office. That suspension has continued until the present.
5. The Applicant's suspension from his employment was suspension without pay. The Applicant successfully applied for reinstatement of his full pay on the grounds of financial hardship in April 1995. Since that time the Applicant has been obliged to continue to demonstrate that financial hardship still exists on a periodic basis in order for his full pay to be continued.
6. In February 1995 the Respondent commenced an audit of the income tax returns of the Applicant, the Applicant's wife and the Applicant's daughter for the income tax years 1992 to 1995 inclusive. That audit included a consideration of matters relating to the sale of paintings, including those sales the subject of the criminal charges against the Applicant and the Applicant's wife.
7. At the conclusion of the taxation audit referred to in paragraph 6 Amended Assessments for both the Applicant and the Applicant's wife were issued on 22 December 1995 for each of the income years 1992 to 1995 inclusive (`the Amended Assessments').
8. The Amended Assessments relating to the Applicant's wife were based on findings that the Applicant's wife had carried on a business of dealing in art works during the years covered by the Amended Assessments and the quantum of the profits from that business were estimated under s167 of the ITAA [sic]. The Amended Assessments in respect of the Applicant accepted the Applicant's contention that he had not been involved in the business of buying and selling art works during the years covered by the Amended Assessments, and [the Amended Assessments] related solely to his entitlement to claim a dependant spouse rebate during those years.
9. The Applicant and his wife respectively lodged objections to each of the respective Amended Assessments on the 24th of January 1996. Those objections were disallowed on the 12th of September 1996. The Applicant and his wife respectively lodged applications for review of the objection decisions in respect of the Amended Assessments in the Administrative Appeals Tribunal on the 20th of September 1996 and those proceedings are still pending in the Tribunal.
10. On 21 March 1995 a personnel enquiry into the Applicant was initiated by the Australian Taxation Office.
11. On 14 July 1995 the Applicant was charged by the Police under the Crimes Act (Cth) with one count of imposition in relation to a medical certificate dated 5 March 1991. Since that time this charge has been regularly adjourned along with the other charges remaining in the Magistrates Court and there is no indication when it might proceed to a hearing.
12. On 13 October 1995 the Applicant lodged a complaint with the Australian Federal Police about the actions of staff of the Australian Taxation Office connected with the audit and the personnel enquiry, alleging breaches of the secrecy provisions of s16 of the ITAA by those staff in the use of audit information and documents and misuse of the information gathering powers under the ITAA.
13. On 2 January 1996 the Applicant lodged a complaint with the Australian Taxation Office about the actions of staff connected with the audit and the personnel enquiry, alleging breaches of the secrecy provisions of s16 of the ITAA by both staff in the use of audit information and documents and misuse of the information gathering powers under the ITAA.
14. On 7 May 1996 the Applicant filed an application in the Federal Court of Australia under the Administrative Decision (Judicial Review) (AD(JR)) Act seeking judicial review of the decision of the Australian Taxation Office not to act upon the Applicant's complaint referred to in paragraph 13. That application for review is still before the Federal Court.
15. On 14 November 1996 the Applicant filed an application in the Federal Court of Australia under the AD(JR) Act seeking a review of the decision of the Australian Federal Police not to act upon the complaint referred to in paragraph 12. That application for review is still before the Federal Court. [The respondent's attempt to seek to have that application dismissed or set aside on the ground that there was no `reviewable decision' identified in the application which qualified pursuant to s3(1) of the AD(JR) Act was dismissed].
16. On the 31st of October 1995 the Applicant lodged his income tax return for the income year ending 30 June 1995 (`T'3), disclosing a taxable income of $52,794.00, made up of salary and wage income of $53,902.00 and claimed deductions for work related expenses of $1,013 and for donations of $95.00.
17. An assessment for the 1995 income year was issued to the Applicant on 27 November 1995 on the basis of the information contained in his 1995 Income Tax Return which allowed all claimed deductions. That position was not affected by the Amended Assessment for the 1995 income year issued on the 22nd of December 1995.
18. Further to the then current objection to the 1995 Amended Assessment by the Applicant, by a letter dated 26th June 1996 the Applicant sought to claim deductions for further work related expenses in the 1995 income year totalling $953.00.
19. On the 13th of August 1996 the Applicant lodged his Income Tax Return for the income year ending 30th of June 1996 (`the income year') disclosing a taxable income of $50,916.00 made up of salary and wage income of $54,914.00 and claimed deductions for work related expenses of $3,903 and for gifts and donations of $95.00.
20. An assessment for the income year issued to the Applicant on the 17th of September 1996 which disallowed work related deductions claimed by him for that year totalling $2,615.00.
21. By a letter to the Respondent dated 22 September 1996, the Applicant lodged objections against each of the 1995 and 1996 Assessments in respect of the claim for deductions of work related expenses of $953.00 in the 1995 income year and $2,615.00 in the 1996 income year.
..."
The agreed statement of facts then continued by reciting which deductions had been disallowed and how it was that the amounts came down to those which were then in issue before the Tribunal.
The Tribunal described the nature of the deductions in issue as follows:
"As I understand the claims they relate to the deductibility of three species of expenditure: (1) legal costs - including advice - incurred in defending the various criminal charges arising out of the sale of art works, said to involve the Applicant and his wife, charges which are unrelated to his employment (save, arguably, the claim said to involve a fraudulent use of a medical certificate, a charge since withdrawn). (2) costs incurred in seeking a "Dietrich" order, that is, seeking a stay of the criminal proceedings on the basis that the applicant was unable to obtain Legal Aid; and (3) costs incurred in `establishing' that the Commissioner acted in breach of s16 of the [Income Tax Assessment Act], a quest which involved several applications to the courts in an endeavour to challenge decisions made by the Federal Police and the Tax Office."
Also before the Tribunal was a supplementary statement of agreed facts to the effect that the applicant sought to include in the assessment for the 1995 income year a further claim for deduction of an additional expense of $100 being the cost of purchasing two editions of a publication, which had been disallowed.
It is appropriate to deal with the reasoning of the Tribunal under the headings of each of the grounds of appeal.
Unlawful representation
Before the Tribunal the applicant took a preliminary objection to the effect that the appearance of a legal practitioner on behalf of the respondent was in breach of the secrecy provisions of s 16 the Income Tax Assessment Act 1936 (Cth) ("the ITA Act 1991 ") and s 3C of the Taxation Administration Act 1953 (Cth) ("the TA Act"). As the Tribunal described the argument made to it, it was in terms that counsel, not being "an officer" of the Australian Taxation Office ("the ATO") as defined by the ITA Act and the TA Act, had been given confidential information contrary to those express prohibitions to the contrary.
The Tribunal found the argument to be misconceived on two grounds. After setting out the provisions of s 16 it was satisfied the respondent was empowered to retain the Australian Government Solicitor or any other practising solicitor for the purpose of proceedings before the Tribunal and the Australian Government Solicitor was in turn empowered to instruct counsel without contravening the section. Support for that view was found by the Tribunal in Consolidated Press Holding Ltd & Ors v FCT & Anor 95 ATC 4,231 at 4,236-4,237 per Lockhart J where he said:
"Some attention was devoted in argument to the position of AGS and counsel instructed by it to act for the Commissioner in litigation or in an advisory capacity. Whatever may have been the position before the introduction of sub-s (1A) to s.16 in 1985, solicitors and counsel retained by the Commissioner must now be taken to be employed by the Commonwealth for the purposes of s. 16 because they perform services for the Commonwealth. They are brought under the umbrella of secrecy imposed by s. 16."
The prohibition contained in s 16 appears in subs 16(2) which reads:
"16(2). Subject to this section, an officer shall not either directly or indirectly, except in the performance of any duty as an officer, and either while he is, or after he ceases to be an officer, make a record of, or divulge or communicate to any person any information respecting the affairs of another person acquired by the officer as mentioned in the definition of `officer' in subsection (1)."
The definition of "officer" as it appears in s 16(1), reads:
" `officer' means a person who is or has been appointed or employed by the Commonwealth or by a State, and who by reason of that appointment or employment, or in the course of that employment may acquire or has acquired information respecting the affairs of any other person, disclosed or obtained under the provisions of this Act or of any previous law of the Commonwealth relating to income tax;"
That is to be read in conjunction with the provisions of s 16(1A) which read:
"16(1A) For the purposes of this section, a person who, although not appointed or employed by the Commonwealth, performs services for the Commonwealth shall be taken to be employed by the Commonwealth."
Disclosure to a court is specifically addressed in subs 16(3) which reads:
"16(3) An officer shall not be required to produce in Court any return, assessment or notice of assessment, or to divulge or communicate to any Court any matter or thing coming under his notice in the performance of his duties as an officer, except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act or of any previous law of the Commonwealth relating to Income Tax."
The prohibition in subs 16(2) is "subject to this section" and consequently also subject to the provisions of subs 16(4) which provides nothing in the section is deemed to prohibit the Commissioner, a Second Commissioner, or a Deputy Commissioner, or "any person thereto authorised by him", from communicating any information to: "... (c) the Tribunal in connection with proceedings under an Act of which the Commissioner has the general administration;".
So far as s 3C of the TA Act and s 30 of the Crimes Act 1914 (Cth) differ from the provisions of s 16, the applicant's case does not place any significance on those variations. The respondent considers the relevant section is s 3C of the TA Act. However, as the applicant's argument was made in terms of s 16, these reasons principally address the application of the provisions of that section on the basis the equivalent provisions of s 3C fall for resolution in the same way.
The applicant contends the Tribunal was in error in relying upon the dicta of Lockhart J in Consolidated Press Holdings Ltd because the passing of confidential information in the course of what the applicant describes "as a civil Tribunal matter" is not "a tax related function." He contends this came about as a consequence of the enactment of the Taxation Laws Amendment Act (No 3) (Cth) ("the Amendment Act") by which new provisions providing for a right of appeal were introduced.
The applicant submits the consequence is the appeal becomes a "civil Tribunal matter" and not "a taxation function" under the ITA Act. Consequently he argues there is no basis for regarding counsel for the respondent as an "officer" falling within s 16 of the ITA Act. Put another way, he states that as the function of representing the ATO in the Tribunal or Federal Court is no longer "a function of the ATO", neither the Australian Government Solicitor nor counsel may be "officers" within s 16 of the ITA Act.
Section 112 of the Amendment Act introduced a new system of taxation objections, reviews and appeals and repealed the prior provisions. Section 112 repealed Parts IVA and Part IVB of the TA Act. The former of those Parts dealt with "requests for reference" and the latter "review of decisions by Administrative Appeals Tribunal". Principally this was provided by s 14ZZ which provided:
"14ZZ. If the person is dissatisfied with the Commissioner's objection decision, the person may:
(a) if the decision is both a reviewable objection decision and an appealable objection decisioneither:
(i) apply to the AAT for review of the decision; or
(ii) appeal to the Federal Court against the decision; or
(b) if the decision is a reviewable objection decision (other than an appealable objection decision) apply to the AAT for review of the decision; or
(c) if the decision is an appealable objection decision (other than a reviewable objection decision) appeal to the Federal Court against the decision."
Division 4 of the same Act set out modifications to the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act") consequent upon the provision of a right of appeal to the Tribunal in s 14ZZ.
The concept of function is taken further in the applicant's submissions by reference to Canadian Pacific Tobacco Company Ltd v Stapleton [1952] HCA 32; (1952) 86 CLR 1 at 6 where Dixon CJ, in the course of a decision confirmed on appeal, said with reference to subs 16(2):
"But, in any case, I think that the words `except in the performance of any duty as an officer' ought to receive a very wide interpretation. The word `duty' there is not, I think, used in a sense that is confined to a legal obligation, but really would be better represented by the word `function'. The exception governs all that is incidental to the carrying out of what is commonly called `the duties of an officer's employment'; that is to say, the functions and proper actions which his employment authorizes."
Even with this being the case, the applicant submits the exception is too widely interpreted if it is understood to encompass within the functions of an officer the instructing of a solicitor and the briefing of counsel before the Tribunal or the Court.
The submissions for the applicant then seek support from some decided cases. The first was FCT & Ors v The Australia and New Zealand Banking Group; Smorgon & Ors v FCT & Ors [1979] FCA 53; 79 ATC 4,039 where the provisions of s 263 of the ITA Act which provided authorisations for the Commissioner or any officer authorised in that behalf to have access to places and documents for any of the purposes of the Act were considered. Murphy J at 4,057 referred to implied limitations on the power in s 263 and that the Commissioner is bound to observe such limitations. The applicant seeks to draw from this dicta support for his contention that the scope of the performance of any duty by an officer falling within the exception to subs 16(2) is not to be so enlarged as to overcome the evident intention of the subsection to impose a limitation on the power of officers to pass information to other persons who are not officers.
Then the submissions for the applicant refer to FCT v Nestle Australia Ltd [1986] FCA 368; (1986) 69 ALR 445 at 450. There the Full Court of the Federal Court (Bowen CJ, Lockhart and Sheppard JJ) considered the question whether s 16 rendered documents in the possession of the Commissioner relating to his investigation of the taxpayer's affairs immune from the processes of discovery and inspection. After reference to the "central provisions" in subss (2) and (3) and to what was said by Dixon CJ in Canadian Pacific Tobacco at 6, the Full Court said (at 950):
"The `duty' of an officer extends beyond the performance of work of an administrative nature such as processing returns, making assessments, considering and dealing with objections, conducting investigations into the affairs of taxpayers and matters of this nature. It includes the occasions on which he is required by the judicial process to produce documents or give evidence in courts, by affidavit or viva voce, concerning the affairs of some other person which he has acquired as an `officer', where the proceedings are referable to the imposition, assessment or collection of revenue. These include appeals to courts under Pt V of the Assessment Act, proceedings for the obtaining of revenue, applications challenging decisions of the Commissioner pursuant to s 39B of the Judiciary Act 1903 and applications for review of decisions of the Commissioner under the Judicial Review Act with which this case is concerned. This approach is consistent with what was said by Kitto J in Mobil Oil Australia Pty Ltd v FCT [1963] HCA 41; (1963) 113 CLR 475 at 500".
The applicant contends that such a wide interpretation of the duties of an officer could not now be the case where the appeals were not to the Courts under Part V of the ITA Act but were now through the Tribunal and so "outside the tax system."
In further support of this approach the applicant referred to Saunders v FCT [1988] HCA 29; 88 ATC 4,349. In that case Northrop J held that Taxation officers would be acting in the performance of their duties in divulging information to the Director of Public Prosecutions (who is not among those enumerated in s 16 as an authorised recipient of information except in the context of a Royal Commission). He held it was plainly part of the officer's duty to assist the recovery of monies owing to the Commonwealth and for this purpose it was permissible to instruct the Director of Public Prosecutions who had the statutory responsibility of taking civil remedies on behalf of the Commonwealth. In the course of his reasons Northrop J also said at 4,359:
"Further, it is noted that sec. 16 does not in express terms authorise tax officers to disclose information to the Australian Government Solicitor for the purpose of receiving legal advice or action. Information so disclosed would not be in breach of sec. 16 of the Tax Act."
The applicant contends, however, that the decision can be distinguished because the provisions of the ITA Act relevant to that appeal required the Commissioner to refer a decision to the Tribunal for review upon request by the taxpayer. He contends that as the application is now required to be filed with the Tribunal, the Tribunal action is no longer "a function of the ATO".
The applicant further seeks to support these submissions by adverting to policy contentions. He says the ATO seeks in briefing counsel to gain an unfair advantage because he does not have the resources to match the expenditure implicit in that. He contends the result is there is a denial of natural justice by the creation of a "David and Goliath contest". There is no legal basis for finding a denial of natural justice in such circumstances and the other aspects are contentions of policy, not law.
In the course of his reasons the Deputy President dealt with a further submission from the respondent to the effect that in any event, s 15 of the TA Act authorises the Commissioner to be legally represented by counsel. Subsection 15(1) of the TA Act provides in any action prosecution or other proceeding, under, or arising out of, a taxation law instituted by on behalf of the Commissioner to which the Commissioner is a party or in which the Commissioner intervenes, the Commissioner may appear personally or may be represented by a barrister and solicitor or legal practitioner or a person authorised in writing to appear. The Deputy President expressed the view the authority of the section was limited to proceedings instituted by or on behalf of the Commissioner or in which the Commissioner intervened or sought to intervene.
He also referred to s 32 of the AAT Act which provides "at the hearing of a proceeding before the Tribunal, a party to the proceeding may appear in person or may be represented by some other person". He held the section overrode what he considered to be the more restrictive provision of the TA Act.
By notice of contention the respondent contends the Deputy President wrongly decided the effect of s 15(1). The case for the respondent contends his right to appear by counsel in proceedings before the Tribunal is conferred by s 32 of the AAT Act and s 15 of the TA Act. As to the latter it is submitted the phrases "instituted by or on behalf of the Commissioner..." and "to which the Commissioner is a party..." are to be read disjunctively.
The applicant accepts the submissions of the respondent on s15 and s 32 so far as the representative of the respondent is an employee of the Commissioner; that is, is the applicant fails to make out his case on this appeal on that aspect he has no further contentions by which to oppose the disjunctive construction.
The applicant's submissions may be answered as follows:
(1) Solicitor and counsel are "officers" so that communication to them by other officers is permitted communication.
This follows from the effect of subss 16(1A) and s 3C(1A) on the definition of "officer" in s 16(1) and s 3C(1) in the ITA Act and TA Act respectively. The dicta of Lockhart J in Consolidated Press Holdings Ltd remains valid. The consequence is that communication from an officer who is an employee of the ATO to an officer who is a solicitor or barrister performing services for the Commonwealth cannot be a communication "outside the tax system". The latter is, by these provisions, made as much an officer in the tax system for the purposes of each section in the ITA Act or TA Act as an employee of the ATO. On the applicant's own premises, his argument cannot succeed.
The further consequence of the enactment of subs 16(1A) of the ITA Act is that, no express provision is needed to authorise a non-counsel officer to communicate with an officer who is a counsel. Accordingly, it cannot be argued because express authorisation is provided in subs 16(3) and par 16(4)(c) for communications to be made by officers to a court or the Tribunal that it is necessary for an express provision to be included for communication between such officers.
For the same reason, namely the enactment of subs 16(1A), it cannot be said there is any implied limitation to limit communications to an officer who is performing services for the Commonwealth such as counsel. The dicta of Murphy J in Smorgon supra provides no support to the applicant's contentions here.
(2) The Commissioner is specifically authorised to communicate information through another person.
Section 16(4) of the ITA Act authorises the Commissioner "or any person thereto authorised by him" to communicate information to the Tribunal. The words "any person" are of wide generality and there is no reason for them not to include reference to a solicitor or barrister performing services for the Commonwealth on behalf of the Commissioner in connection with the proceedings before the Tribunal.
(3) The performance of the duty of an officer extends to and includes conducting the respondent Commissioner's case in relation to an application to review an objection decision.
A reading of s 27(1) of the AAT Act shows it is an enactment other than the AAT Act which provides for the right to make an application to the Tribunal and thus enlivens subject to modification, the provisions of the AAT Act.
The right to apply to the AAT for review of a decision derives from the provisions of the Amendment Act amending the ITA Act. The manner in which the appeal the review is to be conducted is assisted by provisions of the AAT Act which are enlivened by an enactment of the ITA Act. There is therefore no basis for characterising the application to the Tribunal as "a civil matter" unconnected with "the tax system".
On the contrary s 14ZZA (introduced by s 112 of the Amendment Act) and s 14ZC (introduced by s 196 of the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 (Cth)) applied the AAT Act in relation to the review of reviewable objection decisions and other matters so that they incorporated the provisions of the AAT Act by way of application to the tax system. This is further supported by the fact that in each case modifications were made to the application to suit the requirements of "the tax system". Even on the applicant's own conceptualisation of the nature of the change, his argument cannot properly be made.
There is no basis on which to conclude the performance of the duty of an officer, which provides the exception to the prohibition in s 16(2) of the ITA Act, would not include the briefing of counsel to pursue the interest of the Commissioner under the provisions of the ITA Act relating to reviewable decisions.
This position under s 3C(4) of the TA Act requires additional consideration because the phrase used there to characterise the scope of the duties of an officer is "duties in relation to a taxation law." Section 2 of the TA Act defines "taxation law" to include, inter alia, the TA Act and "any other Act of which the Commissioner has the general administration..." but not to include the AAT Act. However, that does not have the consequence that the duties of an officer in relation to the Tribunal are not part of the tax system that is because the duties before the Tribunal arise from the ITA Act. No jurisdiction or power to perform those functions arises from the AAT Act. The functions arise only from a taxation law.
This is reinforced in the case of s 16 by the use of the words "this Act" in the definition of "officer" in subs 16(1). By subs 6(1) "this Act" is defined to include Pt IVC of the TA Act insofar as that Part relates to the ITA Act. Proceedings before the Tribunal relating to an assessment under the ITA Act arise under Pt IVC of the TA Act. The legislature in the definition of "officer" therefore intended that the information acquired under the ITA Act or under Pt IVC of the TA Act is subject to the prohibition against divulging information and therefore part of information acquired in the performance of the duty of an officer.
(4) There is express authorisation for the Commissioner to be represented by a solicitor or barrister.
In my view the third limb of subs 15(1) of the TA Act shows the intention to cast the section widely and there is no reason why the apparent second limb should not be read as such. Furthermore to read the first and second limbs together is in part tautological. I therefore consider the subsection is to be read as applicable to any action:
* instituted by or behalf of the Commissioner, or
* to which the Commissioner is a party, or
* in which the Commissioner intervenes or seeks to intervene
I uphold the notice of contention filed on behalf of the respondent on this point and consider the Deputy President was in error in the conclusion which he tentatively reached in relation to this section.
I agree with the Tribunal that, in any event, authority for the Commissioner to be represented lies in s 32 of the AAT Act which was not modified by the TA Act and therefore has effect: s 14ZZA of the TA Act.
Preserving employment conditions
This ground of appeal is to the effect the Tribunal wrongly concluded the expenses incurred by the applicant, as a senior officer and union official, in contesting his employer's decision to selectively allow breaches of staff taxation secrecy, were not incidental and relevant to the derivation of his assessable income so as to be allowable deductions under s 51(1) of the ITA Act.
The relevant portion of the Tribunal's reasons read:
"31. At its highest, the so-called `section 16' expenses may be said to have been incurred in trawling for evidence which, arguably, may be excluded by the judge in the exercise of his judicial discretion if and when the Applicant's case finally comes to trial. It is then said, presumably, that the exclusion of this material may lead to the Applicant's acquittal or a nolle prosequi, which, in turn, would automatically result in his reinstatement to his former position. That, says the Applicant, is sufficient to attract deductibility of the expenditure because a successful defence would restore him to the position where he was before the charges were brought. For this proposition, he relies heavily on the decision in Magna Alloys & Research Pty Ltd v FCT [1980] FCA 150; 80 ATC 4542. However, in that case, the Court found that the impugned acts of the directors were carried out in their capacities as directors and agents of the taxpayer company and, however misconceived, were undertaken for the benefit of the company, and hence `incidental and relevant' to the derivation of the company's assessable income. This is a far cry from the facts of this case, where I am unable to perceive that the occasion of the outgoing was the production of assessable income; in the terms of tort law, the `perceived connection' between the expenditure and the derivation of assessable income is `too remote'. In any event, the Applicant was adamant that he was anxious to protect his god name and reputation and, to that extent, the expenditure must be seen as being of a private nature."
Earlier the Tribunal had said:
"27. Turning to the law - leaving aside whether the Commissioner was wrong in law in using his powers to collect information under the ITTA for purposes of disciplinary proceedings under the Public Service Act and assuming for present purposes that the information thus obtained resulted in the Applicant's suspension - it is now well established that expenses incurred by an employee in seeking to prevent his employer from terminating his contract of employment where the performance of his duties is in issue are deductible under s51; see per Burchett and Drummond JJ in the Full Federal Court in FCT v Rowe [1995] FCA 1611; 95 ATC 4691 (on appeal 97 ATC 4317)."
The Tribunal added:
"29. Having said that, the facts in Rowe are a far cry from those before me. This taxpayer's suspension - and possible dismissal - is not related to performance of his duties as a tax officer, but based on charges of fraudulent conduct unrelated to any activities within the Tax Office. In other words, the expenditure was not incurred in attempting to save his job; his continued employment with the Tax Office will depend on the outcome of his trial, if and when it proceeds."
There are two aspects to these matters. The first is the effect of the so-called breach of secrecy on the imposition charge (see par 11 of the statement of agreed facts). This forms part of the considerations in relation to the ground of appeal concerning criminal charges. The second aspect is the complaints and proceedings made and commenced by the applicant and referred to in pars 12 to 15 of the statement of agreed facts.
A further portion of the reasons of the Tribunal relevant to this ground of appeal was that in which the Deputy President made reference to a letter from the Director, Policy of the Commonwealth Ombudsman sent to her counterpart in another capital city expressing the view the effect of s 5 of the Public Service Act 1922 (Cth) is that officers of the ATO may only lawfully pass on information to other such officers in order "to enable them to carry out duties under tax legislation (ie legislation `administered by' the Commissioner of Taxation)" (her emphasis). The letter stated the Public Service Act was administered by the Prime Minister through the Department of the Prime Minister and Cabinet and therefore not in this category. Before the Tribunal the applicant relied upon this in support of his contention that the information deriving from the income tax audits of the applicant, his wife and his daughter for the purposes of conducting an evaluation of the applicant's leave entitlements under the Public Service Regulations was unlawful. The Deputy President did not deal with the correctness of the opinion of the Ombudsman's office, stating it fell outside his concern with the deductibility of the expenditures incurred by the taxpayer.
The applicant contends the characterisation of the expenses in respect of the complaints and proceedings was in error. He took the Court in some detail to the evidence which was before the Tribunal. The evidence, described generally, consists of assertions or evidence by the applicant that he has brought the complaints and proceedings to protect his employment conditions and the employment conditions of other staff members of the ATO.
In support of these submissions the applicant relied upon Inglis and Anor v FCT 87 ATC 2,037 at 2,046-2,047. There the first applicant had claimed to be entitled to deduct certain legal expenses incurred in and about the institution and prosecution of civil actions against the Commonwealth and individuals. She was a permanent officer of the Commonwealth Public Service. She claimed new procedures had been invoked which placed unwarranted and special restrictions on her. She instituted the actions in what was held to have been an unwise and ill-judged move. In her view it was to protect her against the loss of status, indignities and blocking of promotion. Deputy President Todd said:
"57. To characterise the expenses here in question, the first question arising under sec. 51 is whether the expenditure was incurred in gaining or producing assessable income. I consider that it was. The gravamen of the dispute that was reflected, however awkwardly, in the legal proceedings in question was the day to day situation of the first applicant in her work in the Parliamentary library. The expenditure was incidental and relevant to the work which produced the first applicant's assessable income. ... ".
He then turned to the critical question whether deductibility was barred by the requirement by s 51(1) that the expenditure not have been of a capital, private or domestic nature. He found it not to be private or domestic and, after examination of case law, he held it not to be of a capital nature. He therefore concluded the expenditure in question had a "perceived connection" - the phrase used in the FCT v Hatchett [1971] HCA 37; 71 ATC 4,184 - with the first applicant's gaining or producing her assessable income and was not of a capital, private or domestic nature.
The present applicant also referred to the reference by the Deputy President to FCT v Rowe 95 ATC 4,691 and contended the Tribunal had failed to apply the principle thus recognised.
For the respondent it is accepted, and not disputed by the applicant, the phrase "incurred in gaining or producing the assessable income" as it appears in s 51(1) of the ITA Act means "incurred in the course of gaining": Amalgamated Zinc (De Bavy's) Ltd v FCT [1935] HCA 81; (1935) 54 CLR 295; Ronpibon Tin NL and Tongkah Compound NL v FCT [1949] HCA 15; (1949) 78 CLR 47 at 56-57; FCT v Forsyth [1981] HCA 4; 81 ATC 4,157 at 4,161. As to the tests of deductibility, it is accepted the expenditure must be "incidental and relevant" to the gaining or producing of income; it is both sufficient and necessary the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income: Ronpibon at 56-57. Likewise the expenditure must have the essential character of a business or income producing expense: Lunney v Commissioner of Taxation; Hayley v Commissioner of Taxation [1958] HCA 5; (1958) 100 CLR 478 at 497-498 and 501. There must be a "perceived connection" of a direct and clear character between the expenditure and the gaining or producing of the assessable income: FCT v Hatchett at 4,187. In the case of employees, the expenditure must be incurred expressly or implied by reason of or in the pursuance of the contract of employment: FCT v Wiener 78 ATC 4,006 at 4,008-4,010; Burton v FCT [1979] FCA 53; 79 ATC 4, 318 at 4,322.
For the respondent it is contended the applicant should fail on this ground because the expenditure was not a business expense as the occasion of the outgoings was not to be found in whatever was productive of assessable income or in activities that would be expected to produce income. The submission continues:
"The fact that the appellant is a public servant who happens to have been employed by the ATO is irrelevant. The complaints are against the ATO in its capacity as a recipient of income tax information not in its capacity as an employer. The appellant does not seek to gain income by his complaints or to affect his employment relationship in a way which is productive of assessable income. The appellant seeks to punish the ATO for what he contends are breaches of s16 ITAA;"
Therefore it is contended for the respondent there is no "perceived connection" between the applicant's expenditure on the complaints concerning the alleged breach of s 16 of the ITA Act and the gaining or producing of income. Further, it is contended the expenditure is of a private nature because the applicant's pursuit of the grievance is motivated by concern to vindicate his reputation and it is not part of his duties as a public servant to complain about alleged breaches of the section so that those complaints are made in the applicant's capacity as a taxpayer and not in his capacity as a public servant.
As to Inglis's case, the contentions for the respondent seek to distinguish the circumstances there on the grounds there was a direct instruction relating to employment. As to Rowe's case, it is said that should be distinguished because the charges which resulted in the applicant bringing the complaints and proceedings did not relate to what he did as a public servant.
The critical question for resolution of this ground is the circumstances which occurred and the characterisation of them. This requires resort to the relevant findings of fact which, in this case, are contained in the statement of agreed facts. Paragraph 4 relates the applicant's suspension from employment with the ATO and to the criminal charges brought against him in January 1995. It was that suspension which was initially without pay. However, the suspension and the bringing of those criminal charges preceded by some months the conduct of the personnel inquiry into the applicant (see par 10 of statement of agreed facts). It is in relation to the latter inquiry the allegations of breaches of secrecy have been brought in the complaints and proceedings.
There remains the question whether the count of imposition (referred to in par 11 of the statement of agreed facts) could be productive of further suspension if the applicant were acquitted of the criminal charges. That is not a matter which requires consideration because, as noted in that paragraph, the Deputy President found the charge had been withdrawn.
It follows therefore on the facts there could not be the requisite perceived connection between the breaches of secrecy and the loss of employment of which the applicant complains. That does not mean the respondent's submissions have been accepted in the terms they have been put but only that it is not necessary to further consider those submissions because, as stated, the alleged breaches of secrecy were not causative of the relevant suspension from employment and because the charge to which they allegedly gave rise is not a continuing charge. The applicant cannot therefore succeed on this ground.
Defence of criminal charges
In relation to the expenses said to be incurred in defending the applicant against criminal charges the Tribunal said:
"30. Turning to the expenses claimed in seeking to defend the criminal charges, the first thing to observe is that these charges arise out of activities unconnected with the Applicant's work in the Tax Office, and hence the expenditure cannot easily be seen as incurred in the course of gaining or producing the Applicant's assessable income (he derived no income from his wife's art business). The fact that certain advantageous consequences may flow from successfully defending these charges is not sufficient to make these expenses incidental or relevant to the Applicant gaining or producing assessable income."
The notice of suspension issued to the applicant under s 63B of the Public Service Act and dated 28 March 1995 recited the applicant had been charged on 21 March with the commission of the following criminal offences:
"Fraud - s409(1)(c) of the Criminal Code (WA) - 20 charges.
Altering odometer readings - s45(1) of the Motor Vehicle Dealers Act 1973-82 as amended - 4 charges.
Unlicensed Motor Vehicle Dealing - s30(1) of the Motor Vehicle Dealers Act 1973-82 as amended - 1 charge
Unlawful possession - s69 of the Police Act (WA) - 3 charges"
The applicant contends the deductions in respect of defending those charges should have been allowed because he has no alternative source of employment and he must preserve his career for his and his family's sustenance. He puts this contention in a number of ways. He says a successful defence will lead to lifting of the suspension so that he would resume employment and productivity. Benefits frozen would be reclaimed by him. His promotion prospects would be renewed, maintaining his employment of 25 years would be neither of a private or capital nature. He seeks therefore in a range of such arguments to assert that a perceived connection between his defence of the charges and his employment should have been found by the Tribunal.
In my opinion the applicant's contentions cannot succeed. The gravamen of the dispute reflected in the criminal proceedings had nothing to do with the day-to-day work of the applicant.
The Tribunal did not misapply what was said by Burchett J and Drummond J in Rowe's case at 4702. Burchett J said the liability for legal expenses there in question:
"was incurred, or the claim was encountered, because of the very act of performing the work by which the respondent earned assessable income. The activities which produced the assessable income were what exposed the taxpayer to the liability discharged by the expenditure. As the Court said in Putnin at ATC 4102; FCR 413, so here, `the ... proceedings arose from the activities by which the taxpayer earned his income, the mode of his performance of a particular task carried out in the course of business operations' "
The criminal proceedings against the applicant did not arise from activities by which he earned his income and had no relationship to performance of his duties. To argue, as the applicant does, that the performance of his duties required an impeccable performance in his private life, is to endeavour to draw an artificial and unreal perceived connection when no connection of the requisite character is present.
It follows that while success in defending the criminal charge may have the various consequences relied upon by the applicant in relationship to his employment, the defence of those charges was properly seen by the Tribunal as not incidental or relevant to the gaining or production of assessable income. The occasion of the outgoings in the form of the legal expenses was not to be found in what was productive of assessable income or in activities that would be expected to produce assessable income.
The same conclusion is apposite in respect of the Dietrich application by the applicant.
No error of law is disclosed in relation to the grounds relating to criminal charges.
Reference book expense
A claim for $100 in the 1995 income year in respect of a reference book expense was disallowed by the ATO on the basis the bankcard records revealed the expenditure was incurred by the applicant's wife.
Of this the Tribunal said:
"37. It seems to me that real issue is not who paid for the book, but how - assuming it was paid for by the Applicant - it relates to his assessable income. It was conceded during the hearing that (for tax purposes) the art business was conducted solely by the Applicant's wife and that the taxpayer played no part in that business or derived income from it. In those circumstances I fail to see how the expenditure on Miller's Antique Guide can be an allowable deduction in his hands any more than if he paid for his wife's bloomers."
The finding of the Deputy President that the applicant derived no income from his wife's art business had earlier been made during the course of his setting out the statement of agreed facts. In a portion of par 2, not reproduced above, he said:
"The Applicant's wife owns and operates an art gallery. Although the respondent originally maintained that the business was operated jointly by the Applicant and his wife, at the hearing before me it was conceded that the business was solely operated by the wife. This concession has, of course, no bearing on the criminal proceedings".
On the hearing of this appeal the applicant disputed that the concession had been made before the Deputy President.
For the respondent it is accepted the Tribunal was in error in finding the applicant had conceded his wife ran the business.
The applicant's position is that he purchased the reference book to provide prices concerning car sales to enable him to demonstrate the uncommerciality of the tax auditor's claim that he was operating the business jointly with his wife. He claims to have succeeded in that objective. That is an acceptance by him that the expenditure was in relation to his wife's tax affairs and so it must follow it was not an allowable deduction to him. A consequential adjustment to the applicant's spouse rebate would not qualify the expenditure as an allowable deduction to the applicant.
Natural justice
A ground of appeal directed to bias was not pursued at the hearing.
Conclusion
For these reasons the appeal should be dismissed.
|
I certify that this and the preceding twenty-two (22) pages are a true copy of the Reasons for Judgment herein of the Honourable
Justice R D NICHOLSON |
Associate:
Dated: 23 January 1998
|
Counsel for the Applicant: | In person |
| Solicitor for the Applicant: | None on record |
| Counsel for the Respondent: | M Corboy |
| Solicitor for the Respondent: | Australian Government Solicitor |
| Date of Hearing: | 26 November 1997 |
| Date of Judgment: | 23 January 1998 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1998/19.html