Harts Australia Ltd v Commissioner of Taxation [1999] FCA 1883 (10 September 1999)

Last Updated: 21 August 2000

FEDERAL COURT OF AUSTRALIA

Harts Australia Ltd v Commissioner of Taxation [1999] FCA 1883

PRACTICE AND PROCEDURE - circumstances in which Court will determine separate hearing - relevant consideration involved, approach to take where resolution of the question may not necessarily resolve controversy - where question is of some importance, viz, whether agreements in the common form relied upon by the two taxpayers as sufficient for the purposes of s 80G(6) and (6A) can be contained in agreements which do not appropriate a specific sum in respect of the losses to be transferred from the loss company associated with the taxpayer to the taxpayer in respect of the particular year of income of the taxpayer, in which the latter seeks to take advantage of those transfer losses

Income Tax Assessment Act 1936 (Cth) s 80G

HARTS AUSTRALIA LIMITED v COMMISSIONER OF TAXATION

Q 204 OF 1999

HARTS CONSULTING PTY LTD v COMMISSIONER OF TAXATION

Q 205 OF 1999

DRUMMOND J

10 SEPTEMBER 1999

BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 204 OF 1999

BETWEEN:	HARTS AUSTRALIA LIMITED Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE:	DRUMMOND J
DATE OF ORDER:	10 SEPTEMBER 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The applicant in the notice of motion filed 26 August 1999 bring into Court minutes of the order setting out the questions to be raised in the separate hearing and the agreed facts, and in default of the parties being able to agree on the form of the questions and the agreement facts to be stated, the matter will come back to the Court for further directions.

2. The matter be adjourned to Wednesday, 15 December 1999.

3. Costs of the notice of motion be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 205 OF 1999

BETWEEN:	HARTS CONSULTING PTY LTD Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE:	DRUMMOND J
DATE OF ORDER:	10 SEPTEMBER 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The applicant in the notice of motion filed 26 August 1999 bring into Court minutes of the order setting out the questions to be raised in the separate hearing and the agreed facts, and in default of the parties being able to agree on the form of the questions and the agreement facts to be stated, the matter will come back to the Court for further directions.

2. The matter be adjourned to Wednesday, 15 December 1999.

3. Costs of the notice of motion be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 204 OF 1999

BETWEEN:	HARTS AUSTRALIA LIMITED Applicant
AND:	COMMISSIONER OF TAXATION Respondent

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 205 OF 1999

BETWEEN:	HARTS CONSULTING PTY LTD Applicant
AND:	COMMISSIONER OF TAXATION Respondent

JUDGE:	DRUMMOND J
DATE:	10 SEPTEMBER 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1 I have before me notices of motion in two actions in which both applicants challenge the relevant objection decisions made by the Commissioner in respect of the 1992 income year. Harts Australia Ltd also challenges objection decisions made by the Commissioner in the 1993 and 1996 income years.

2 In respect of the 1992 year Harts Consulting Pty Ltd relies upon a written agreement which it says is sufficient for the purposes of s 80G the Income Tax Assessment Act 1936 (Cth). Harts Australia relies upon an agreement in similar form in respect of the 1993 and 1996 years. Each of these agreements transfers to the taxpayer from a company associated with each taxpayer "so much of the losses required which make [the taxpayer's] taxable income NIL".

3 In relation to the 1992 year and the objection decision challenged, the only agreement Harts Australia can rely on is one very recently entered into. It therefore needs an extension of time, or rather acceptance by the Commissioner of that belated agreement, as one which the Commissioner will treat as effective for the purposes of s 80G(6A).

4 It seems to me plain that there is a legal issue of importance to the determination of the litigation, viz, whether agreements in the common form relied upon by the two taxpayers as sufficient for the purposes of s 80G(6) and (6A) can be contained in agreements which do not appropriate a specific sum in respect of the losses to be transferred from the loss company associated with the taxpayer to the taxpayer in respect of the particular year of income of the taxpayer, in which the latter seeks to take advantage of those transferred losses.

5 That question is not quite as simple as it seems, because reference to the Commissioner's statement of facts and contentions shows that it conceals another question, namely, whether an agreement not appropriating a specific amount by way of tax losses can be relied upon in effect more than once by the taxpayer to take advantage of that agreement where there has been a re-assessment that increases the taxpayer's tax liability for a particular year subsequently, to the lodgment of a return in which the loss transfer agreement has already been relied on.

6 That is but an aspect of the central point which the taxpayers seek to have determined as a separate issue, viz, whether an agreement in the form of exhibit SIH2 to Steven Hart's affidavit filed 26 August 1999 is capable of meeting the requirements of s 80G(6) and (6A).

7 I accept that if the legal issue, involving as it does a question of construction, is determined in favour of the Commissioner, there will still remain issues of some possible complexity to be litigated. These include the propriety of the assessments made by the Commissioner and factual issues, including whether the income which the taxpayers claim, in reliance on the agreements, they returned in later years to years in which that income should have been returned (if the Commissioner is right in his interpretation of the agreements and the section) was, in fact, returned in those later years.

8 But it seems to me that if the legal question is determined in favour of the taxpayer it will, subject to one qualification, resolve the case so far as Harts Consulting is concerned, it being involved only in one year the 1992 year, and the case of Harts Australia in respect of the 1993 and 1996 years. If the point is determined in favour of the taxpayer, subject to the qualification I will come to in a moment, it will not determine the position of Harts Australia in relation to the 1992 year because Harts Australia needs to procure the exercise of the discretion of the Commissioner under s 80G(6)(c) in its favour, if it succeeds on the construction point so far as that particular year is concerned, before it will be able to rely upon the recently made loss transfer agreement for that year.

9 The only agreement that Harts Australia can point to in respect of the 1992 year is an agreement made, according to Harts Australia, in 1999, which is in the same form as SIH2. If the taxpayer wins on the construction point, that win will not, by any means, entitle the taxpayer to have the 1999 agreement treated as sufficient for the purposes of the section in respect of the 1992 year. But it will be of utility with respect to the Commissioner's determination as to how the discretion in that respect should be exercised in so far as it will be relevant to though not decisive of the issue whether the taxpayer has an arguable case on the merits.

10 The qualification I have mentioned is that the Commissioner says the whole exercise of determining the legal questions, parts A and parts B, proposed by the taxpayer as separate issues may turn out to be of no relevance to the outcome of the case. He bases that submission on the proposition that he does not accept the agreements relied on by the two taxpayers as honest agreements. What he says (by way of example), in relation to the agreement which is SIH2, an agreement purporting to be executed on 26 October 1993 on behalf of the loss company and on behalf of Harts Australia, as taxpayer, is that he "does not accept that the document bearing the date 26 October 1993 was executed on or about that date".

11 The Commissioner, as I understand it, takes that position in relation to all of the agreements that I have referred to. The point that the Commissioner made clear in argument that he wishes to raise is, in effect, that the agreements relied upon by the taxpayer are forgeries. However, the Commissioner raises that factual challenge to the relevance of the documents relied upon by the taxpayer by a bare assertion, not even that he regards them as forgeries, but just that he does not accept that the document bearing the particular date was executed on that date.

12 That really in terms is no more than an assertion of the common place that it is the taxpayer who bears the onus of proving the excessiveness of the relevant assessment, and all issues associated with that. If the Commissioner had in his statement of facts, issues and contentions indicated the possibility of a case that the documents were unreliable in the manner mentioned, that would have been a powerful consideration telling against the utility of dealing with the legal question as a separate issue.

13 The Commissioner is, of course, under an obligation, under the modern approach to pleading, to expose the factual basis of significant issues he wishes to rely on in defeating the attack on his objection decision. And it is now, as I understand the law, asserted that the statements of facts, issues and contentions filed by the Commissioner pursuant to O 52B r 5A(5) is intended to serve the purpose of exposing the Commissioner's case in such respects.

14 The taxpayer who, of course, one has to acknowledge is in the best position to know the true facts, has put in evidence, as senior counsel for the taxpayers submits, to show that the agreements in question were made on the dates they bear.

15 I think in this state of the evidence before me it would be wrong for me to take into account the ambiguous assertion by the Commissioner as raising sufficient concern that determination of the questions of law as preliminary issues may be lacking in utility. I would not regard that as telling against the exercise of the discretion to deal with the questions as preliminary ones which the taxpayer seeks.

16 Given these circumstances it seems to me that it is appropriate to deal in relation to the motion by Harts Consulting and Harts Australia with the question whether agreements in the form of SIH2 meet the requirements of s 80G(6)(c) and (6A) the Income Tax Assessment Act 1936 (Cth), before any other questions are determined. That question should be determined only in relation to Harts Consulting in respect of the objection in respect to the 1992 year, and Harts Australia in respect of the objection in respect to the 1993 and 1996 years. It should not be determined in relation to Harts Australia in the 1992 year, given that if the point is determined in favour of the taxpayer there will still remain the question of the extension of time to be sought.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Associate:

Dated: 14 August 2000

Counsel for the Applicant:	Mr D Russell QC and Mr P Bickford
Solicitor for the Applicant:	Thompson Hannan
Counsel for the Respondent:	Mr P Hack
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	10 September 1999
Date of Judgment:	10 September 1999