Young v Commissioner of Taxation [2000] FCA 122 (17 February 2000)

Last Updated: 17 February 2000

FEDERAL COURT OF AUSTRALIA

Young v Commissioner of Taxation

[2000] FCA 122

ADMINISTRATIVE LAW - judicial review by taxpayer pursuant to s 39B Judiciary Act 1903 of announced policy of Commissioner of Taxation as to assessment of those involved in an alleged scheme - whether review precluded by s 175, s 177 of Income Tax Assessment Act 1936 - standing of applicant - whether relief should be refused on discretionary grounds

TAXATION - whether a general policy announcement by the Commissioner of Taxation as to the assessment of a class of taxpayer is subject to judicial review

Judiciary Act 1903 (Cth) s 39B

Income Tax Assessment Act 1936 (Cth) ss 175, 177

Taxation Administration Act 1953 (Cth) Pt IVC

Drake and Minister for Immigration & Ethnic Affairs, Re (No 2) (1979) 2 ALD 634 distinguished

Bateman's Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd [1998] HCA 49; (1998) 194 CLR 247 cited

Corlette v MacKenzie (1995) 62 FCR 584 cited

Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5 (10 February 2000) cited

Xu v Minister for Immigration & Multicultural Affairs [1999] FCA 1741 (17 December 1999) cited

Hammersley Iron Pty Ltd v National Competition Council (1999) 164 ALR 203 applied

Oil Basins Ltd v Commonwealth [1993] HCA 60; (1993) 178 CLR 643 distinguished

Deputy Commissioner of Taxation (Cth) v Richard Walter Pty Ltd [1995] HCA 23; (1994-1995) 183 CLR 168 applied

Sunrise Auto Ltd v Commissioner of Taxation (1995) 61 FCR 446 cited

Golden City Car & Truck Centre Pty Ltd v Deputy Federal Commissioner of Taxation (1999) 99 ATC 4131 cited

San Remo Macaroni Co Pty Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5138, [1999] FCA 1468 cited

R v Hickman; ex parte Fox & Clinton [1945] HCA 53; (1945) 70 CLR 598 cited

R v Commissioner of Taxation (WA); ex parte Briggs (1986) 12 FCR 301 distinguished

Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286 at 307 cited

ALAN JAMES YOUNG v COMMISSIONER OF TAXATION

N 99 OF 2000

GYLES J

SYDNEY

17 FEBRUARY 2000

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 99 OF 2000

BETWEEN:	ALAN JAMES YOUNG APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT
JUDGE:	GYLES J
DATE OF ORDER:	17 FEBRUARY 2000
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The application is dismissed.

2. The applicant is to pay the respondent's costs in these proceedings.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 99 OF 2000

BETWEEN:	ALAN JAMES YOUNG APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT

JUDGE:	GYLES J
DATE:	17 FEBRUARY 2000
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 This is an application by Alan James Young ("the applicant") for an order of review under s 39B(1) or, alternatively, s 39B(1A) of the Judiciary Act 1903 (Cth) of the actions of the Commissioner of Taxation ("the Commissioner") in adopting and announcing a policy ("the Policy") concerning the proposed treatment by the Commissioner of what are described as equity-linked bonds and notes ("linked bonds"), seeking injunctive and declaratory relief.

2 Whilst the applicant did not formally abandon his claim to injunctive relief, the relief which was pressed was a declaration that the Policy is unlawful. In either case, in proceedings of this kind, relief is discretionary.

3 When the matter came before me on 10 February 2000 for interlocutory relief, the parties, very sensibly, agreed that it would be more appropriate to hear the matter on a final basis and the hearing commenced on that day. With interruptions, it was possible to complete the hearing on 11 February. For any relief which may be granted to be of utility, it is necessary that a decision be made promptly. I will therefore express my reasons more briefly and with less citation of authority than may have been the case if more time were available. I shall not reproduce the various statutory provisions to which I shall refer.

Facts

4 There is no dispute as to the primary facts, which are reflected solely in documents, but there is an issue as to the conclusion which should be drawn from them. It is submitted on behalf of the applicant that the Commissioner has bound himself to implement a pre-determined policy when exercising his powers under the Income Tax Assessment Act 1936 (Cth) ("the Act"), whereas it is submitted on behalf of the Commissioner that the Policy is not inconsistent with each case being considered on its merits.

5 I was taken through the chronology of documents by each counsel. I need not set this chronology out in these reasons. The important thing is the announced position of the Commissioner at the time the proceedings were commenced. In my opinion, the operative statements constituting the Policy are:

1. The Commissioner's media release 99/21 dated 15 June 1999, which is in the following terms:

"TAX OFFICE TO DISALLOW LINKED BONDS TAX DEDUCTIONS

Tax deductions claimed by taxpayers participating in linked bond, or note, arrangements will be disallowed, Tax Commissioner Michael Carmody said today.

These bonds, currently marketed by a number of banks, combine the features of a bond paying fixed interest on maturity with potential for a bonus return. This bonus return is linked to the performance of either a pre-selected equity (single share, basket of shares, equity index), interest rate or exchange rate.

The usual features of these bonds are:

* the investor borrows 100 per cent of the face value of the bond and pre-pays the interest, of which a significant portion (in some cases up to 90 per cent) is borrowed from the issuer in the first year of the arrangement;

* the investor returns the fixed interest on maturity of the bond in the second year of the arrangement; and

* the bond offers potential for a bonus return linked to the movement of a share price, exchange rate or other contingent event.

"In the cases we are concerned about, the arrangements are structured so that, putting aside the claimed tax benefits, there is little if any prospect of commercial gain. In a typical product, a movement of up to 30 per cent in the linked shares or index is required before the investor recoups his or her actual outlay." Mr Carmody said.

"Loans to buy bonds are provided to investors who, in some instances, have inadequate underlying security. One taxpayer had assets of $500,000 and was loaned an amount exceeding $20 million. Banks are providing these loans without security because the loan is returned to them through the purchase price of the bond.

"In what appears to be a typical example, one taxpayer purchased securities with a face value in excess of $20 million for an outlay of less than $200,000 and claimed a tax deduction of approximately $2.5 million.

"The Tax Office is aware of some cases where investors have acquired bonds with contrary positions. For example, in one case, a taxpayer purchased $10 million in bonds linked to a rise in the All Ordinaries Index along with $10 million in bonds linked to a fall in the same Index. In this case a movement of 56 per cent in the Index was required in order for the taxpayer to recoup their outlay" Mr Carmody said.

"By further reducing the prospect of commercial gain, this example reinforces the dominant tax purpose of these products.

"Another group purchased bonds with a face value in excess of $800 million, claiming a tax deduction of $80 million which was equivalent to the profit made on a takeover.

"Given the features and typical use of these bonds we have concluded that their dominant purpose is to obtain a tax benefit and the general anti-avoidance provisions could apply.

"In such circumstances substantial penalties may apply. However, we are offering participants in these arrangements the opportunity to come forward before 31 July 1999 and receive reduced penalties in accordance with our normal policy," Mr Carmody said.

The ATO position under the law and the options available are accessible on our website www.ato.gov.au/ under What's New. People wishing to come forward to take advantage of the offer can contact us on 1300 650 135, or write to the Linked Bond Unit at P.O. Box 9003, Penrith, NSW, 2740.

CANBERRA

15 June 1999"

2. The Commissioner's media release 99/84 dated 30 November 1999, which is in the following terms:

"TAX OFFICE SETTLES ON EQUITY LINKED BONDS

Tax Commissioner Michael Carmody announced today that the terms of a settlement have been agreed with representatives of the International Banks and Securities Association of Australia (IBSA) in relation to equity linked bonds and notes.

Mr Carmody said that the effect of the settlement is that the self-cancelling parts of the note arrangement will not be recognised for income tax purposes.

"This negates the claimed timing advantage built into the arrangement, but still recognises an investor's actual cash outlay and receipts from participating in the facility," Mr Carmody said.

"We have agreed that noteholders who wish to come within the terms of the settlement will be allowed an income tax deduction for the amount of their cash outlay for interest changed on the notes.

"Money borrowed from the note issuer to `prepay' the balance of interest charged will not be deductible. As a result only the `bonus' interest received in the next year will be assessed.

"We recognise that there still is a genuine difference of view on linked notes. The terms of this settlement will allow noteholders to clear the air in respect of their own tax affairs. As usual, assessments for participants in a settlement of a tax dispute will be finalised for each year in respect of the particular matter.

"The Tax Office will contact all noteholders shortly to set out the terms of the settlement proposal for them to consider.

"Noteholders who participate in the settlement will be subject to a 10 per cent tax shortfall penalty on the amount of interest claimed that will be excluded under the settlement. Noteholders will be entitled to offset their interest on overpayment entitlement in the second year against the interest chargeable on the underpayment in the first year.

"Noteholders who decline to participate in the settlement will face the uncertainty of future Court action. However, we will proceed as quickly as possible to have the matter decided.

"We have also received submissions regarding a small group of investors who have a history of returning profits from securities trading activities on revenue account. It was claimed that their trading activities set them apart from the majority of noteholders.

"Whilst the taxation drivers strongly embedded within the linked note product work against that conclusion, we are prepared to look at individual trader's circumstances.

"The discussions with IBSA have been valuable in clarifying the competing views about the note arrangements. We have also agreed with IBSA on a framework for future discussions on new financial services products as they are developed in the marketplace," Mr Carmody.

Investors and tax practitioners with inquiries on equity linked bonds and notes should contact the Tax Office on 1300 650 135 and further details will be available on the Tax Office's Internet site, ATOassist, at www.ato.gov.au.

CANBERRA

30 November 1999"

6 The effect of these releases is both summarised and explained more fully on the Australian Taxation Office website in the following terms (omitting the tables):

"Linked Bonds and Notes - Commissioner's Settlement Offer

LINKED BOND (OR NOTE) SECURITIES

Options available to taxpayers who participated in certain linked bond or note products.

On 15 June 1999, the Commissioner of Taxation announced that tax deductions claimed by taxpayers participating in linked bond, or note arrangements would be disallowed (Media Release 99/21). Taxpayers were invited to voluntarily disclose their involvement in these arrangements and thereby take advantage of substantially reduced rates of penalty tax. Subsequent Media Releases, 99/46 and 99/77, extended the time for making a disclosure.

Continuing representations from industry groups resulted in Media Release 99/84 issuing on 30 November 1999.

In that Release, we announced the terms of a settlement for taxpayers who wish to finalise their assessments in respect of their participation in these arrangements. We expect to be contacting noteholders in February 2000 and inviting them to settle.

Summary

In summary, taxpayers who entered into these arrangements may now adopt one of three options:

Option 1: Noteholders may still come forward and voluntarily disclose their involvement.

If they do so they will receive reduced penalties and will also preserve their objection rights. We will then proceed to amend their assessments to deny the deductions claimed and to apply the capital gains tax provisions to the arrangement.

Interest on underpayment will be payable on the tax shortfall (and the new General Interest Charge (`GIC') will apply from 1 July 1999).

Option 2: Noteholders can take up the settlement offer.

The effect of the settlement is that the self-cancelling parts of the note arrangement will not be recognised for income tax purposes.

Noteholders who wish to come within the terms of the settlement will be allowed an income tax deduction for the amount of their actual cash outlay for interest charged on the notes. In other words, the arrangement will be assessed on a revenue basis rather than a capital gains basis.

Money borrowed from the note issuer to `prepay' the balance of interest charged will not be deductible. Only the `bonus' interest received in the next year will be assessed.

Noteholders who participate in the settlement will be subject to a 10% tax shortfall penalty in respect of the amount of interest claimed that will be excluded under the settlement. Interest on the tax shortfall will be payable.

Noteholders will be entitled to offset their interest on overpayment entitlement in the second year against the interest chargeable on the underpayment in the first year.

By agreeing to the settlement offer, the relevant assessments will then be formally finalised for those years in respect of this matter. No further disputation can occur.

Option 3: Noteholders can decline to either voluntarily disclose their involvement or to participate in a settlement.

In these cases we will follow the procedure in Option 1 above, except that the tax shortfall penalty will be calculated at a rate of 50% of the tax due instead of 10%. Interest on the tax shortfall will be payable.

Noteholders who do not disclose their involvement prior to being contacted by the ATO will not be able to take advantage of the voluntary disclosure concessional treatment outlined in Option 1.

Noteholders may ask now to participate in the settlement or, once contacted, noteholders may participate in the settlement within the specified 28 day period following receipt of the settlement offer.

Details of the Options

Option 1 - Disclose Involvement Voluntarily

If a noteholder decides to disclose his or her participation voluntarily (i.e., prior to being contacted by the ATO), we will proceed to amend the relevant assessments to reflect our understanding of the correct taxation treatment required by the law. In our view the assessments of the noteholder should reflect the net gain or loss on the transaction as a capital gain or loss in the first year of the arrangement. If a capital loss has been incurred, it will be available for offset against capital gains in the usual way.

However, by making a voluntary disclosure and preserving your objection and appeal rights rather than participating in the settlement arrangements, we will assume that you will be exercising those rights. Accordingly, based on this assumption we will:

Issue an amended assessment disallowing the interest claimed in year one of the arrangement. A 10% penalty in respect of the tax shortfall resulting from the interest claimed will be imposed. The interest charge on the tax shortfall will apply from the due date of the original assessment.

Proceed on the basis that an objection would be lodged in respect of the disallowance of the interest deduction claimed in year one. Having regard to the statutory time periods in relation to amending assessments, we will therefore initially also maintain the inclusion of the guaranteed interest and bonus interest (if any) received in year two. An objection should be lodged also in respect of that year.

Once the objections and any subsequent litigation are finalised we will take whatever amending action is required to give effect to the Court's decision. If the Courts uphold our view of the law, amendments will be made reflecting the capital gains tax position outlined above.

The example below assumes the taxpayer earns $150,000 in wages annually and has no dependants. The taxpayer purchases a linked note in the 1997 year, claims $55,000 prepaid interest in that year and returns the fixed interest of $50,700 plus, say, $3,000 bonus interest in the 1998 year.

Table 1 explains the taxpayer's situation prior to an amendment being made. Table 2 shows the situation afterwards.

[Table 1 and Table 2]

Taxpayers can preserve their objections rights and may:

Lodge an objection against the denial of a deduction for the interest claimed in year one of the arrangement; and

Lodge an objection against maintaining the inclusion of the interest on the bond or note in year two of the arrangement.

A capital gain or loss will accrue in year one. In this example it would be a loss of $1,300.00 and will be recognised once the dispute process is finalised. At that time interest adjustments will also then be made reflecting the overpayment of tax in year two.

Payment of tax will be subject to the usual deferment arrangements for matters subject to dispute. Payment of all the tax not in dispute and half of the tax in dispute is necessary to take advantage of the deferment arrangements.

Interest will also be payable on the tax shortfall from the due date of the original assessment to the date of issue of the amended assessment. From 1 July 1999 the GIC will be payable on the amounts outstanding. Where the ATO owes an amount to a taxpayer it must pay interest equivalent to the weighted average yield for 13 week Treasury Notes, currently 5.08%. Where a taxpayer owes an amount to the ATO the charge is calculated as above plus 8 percentage points. That amount, therefore, is 13.08%.

Caution: Even when a deferment arrangement has been granted, the Commissioner may commence recovery action if he considers, on reasonable grounds, that the revenue may be at risk.

Option 2 - Accepting the Settlement Offer

If a noteholder accepts the settlement offer we will:

Allow the amount of the actual cash contribution in year one as a deduction and deny the borrowed interest amount claimed in year one of the arrangement;

Exclude the guaranteed interest income returned in year two of the arrangement;

Assess any bonus interest received in year two of the arrangement;

Apply a reduced penalty of 10% to the tax shortfall in year one;

Impose interest on the tax shortfall (GIC from 1 July 1999) from the due date of the original assessment; and

Expect that payment in full of the tax assessed will be made by the due date. (Failure to do so will result in GIC accruing on that amount after that date.)

The example below uses the same assumptions as with the example above, ($150,000 annual wage income, no dependants, one bond purchased in 1997 with $3000 bonus interest received in 1998). The example illustrates the amendments that would be made to the assessment of a person who chooses Option 2.

[Table 3]

Option 3 - Do Nothing

Noteholders who do not disclose their involvement in the arrangement and who do not participate in the settlement will not be entitled to any concessional penalty treatment.

In these cases we will follow the procedure in Option 1 above except that the tax shortfall penalty will be calculated at a rate of 50% of the tax due instead of 10%. Interest on the tax shortfall (GIC from 1 July 1999) will also be payable.

What can you do now?

Those taxpayers who have already disclosed their involvement in Linked Bond or Note arrangements may write to the address below and indicate their willingness to enter into the settlement or may wait until the ATO contacts them with details of the settlement offer.

Others can voluntarily disclose now or enter into the settlement now.

For more information or inquiries ring the Hotline at 1 300 650 135 or write to the Australian Taxation Office, PO Box CC-19, Parramatta NSW 2123."

7 Mr Gageler submits that these public statements should all be read against the backdrop that the law provides that the Commissioner is bound to consider each case on its merits, and drew my attention to some of the language of the statements which indicated they were intended to be tentative and to deal only in generalities. I do not agree. The essence of a scheme such as that represented by the Policy is that it lays down rules which will be adhered to. Unless taxpayers are convinced that both the threats and promises inherent in the scheme are genuine, it will not work. The express reservation of the position of a certain class of professional investors was relied upon by Mr Gageler to indicate the tentative nature of the statements. In my opinion, this tends if anything the other way, as was submitted by Mr Robertson SC, as it could be inferred that others did not have the benefit of the reservation.

8 It may be accepted that there would necessarily be room for debate about the application of such a general policy - for example, a taxpayer might say that the arrangements into which it entered were not linked bonds within the meaning of the Policy. This does not mean that the Policy is tentative in any real sense.

9 Mr Gageler also relied upon statements made on behalf of the Commissioner in correspondence to the solicitors for the applicant to the effect the individual case would be looked at on the merits. Mr Robertson SC submitted that this was, in effect, window-dressing and pointed out that no evidence had been filed by or on behalf of the Commissioner to this effect. He also relied upon the failure of the Commissioner to reply to a letter from the applicant's solicitors dated 31 January 2000. I agree with the substance of Mr Robertson's submission.

10 I therefore conclude that the Commissioner has bound himself to deal with taxpayers, including the applicant, in accordance with the Policy.

11 In my opinion, the Policy is to be distinguished from government or administrative policy as discussed in cases such as In re Drake and Minister for Immigration & Ethnic Affairs (No 2) (1979) 2 ALD 634. The Policy, in truth, relates to the affairs of a particular class of identified taxpayers.

Contentions of the parties

12 It was contended on behalf of the applicant that if I found the facts as I have, then the Commissioner had unlawfully tied his hands in exercising the power and discretions granted to him by the Act. Although Mr Gageler, for the Commissioner, made no concession that this is correct, for the purpose of his argument on the facts, he relied upon the circumstance that the Commissioner was bound to consider every case on its merits. This is also the position advanced on the Commissioner's behalf in letters to the applicant's solicitors.

13 It was contended for the Commissioner that even if the Policy was unlawful in the sense submitted by the applicant:

1. The Policy as such was not properly justiciable between the applicant and the Commissioner;

2. The applicant will have a right to a full merits review pursuant to the Act in relation to any steps taken to implement the Policy;

3. In any event, the relief sought by the applicant is precluded by s 175 and s 177 of the Act.

Decision

14 Assuming that the Policy is unlawful, as submitted on behalf of the applicant, although it is doubtful whether any of the points argued on behalf of the Commissioner preclude the relief sought, in my opinion, the combined effect of them is such that in the exercise of my discretion I should grant no relief.

15 The applicant can only be concerned with the Policy insofar as it affects him. The most controversial aspect of the Policy, in my opinion, is the settlement offer reflected in option 2. It raises questions of law and administration when proposed as part of this package of options. I can, however, see no adverse affect upon the applicant as a result. Indeed, it gives him an opportunity he would not otherwise have. The fact that he has to make a decision is not, in any relevant sense, adverse to him. In those circumstances, in my opinion, he has no standing to complain about any breach of the law that might be involved. The remedy, if any, would lie at the suit of the Attorney-General for the Commonwealth (Bateman's Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd [1998] HCA 49; (1998) 194 CLR 247 at 260-264).

16 The alleged unlawfulness in relation to options 1 and 3 is somewhat elusive. It is certainly correct that application of an inflexible policy without regard to the merits of individual cases is a standard ground of attack upon administrative decisions, although there is often a thin line between that situation and a decision-maker properly taking into account a general policy which is consistent with the Act (Corlette v MacKenzie (1995) 62 FCR 584 at 595 E-G). Here, Mr Gageler submits that options 1 and 3 are merely the result of applying Pt IVA to the transactions in question and reflect the statutory level of penalty, depending upon disclosure or otherwise. These options do indicate a fixed view about the question of remission of penalty and may also involve an unwillingness to consider the circumstances of individual taxpayers in entering into the transactions. It is not necessary to come to any final view as to whether this is unlawful.

17 What is clear is that the critical step which actually affects the taxpayer is the ultimate application of Pt IVA of the Act to the transaction by the Commissioner when the process of assessment takes place. When and if that takes place, the applicant has a full right of review on the merits, including the issue of penalty, and including an appeal on questions of law to the Court. That process results in the correct substantive decision. The existence of other remedies has always been a powerful factor against the grant of relief of the kind envisaged by s 39B of the Judiciary Act, including the alternate remedy of declaration.

18 There is also a real question as to whether the relief is not premature and the question hypothetical. Whilst I have found that the Policy is, in the relevant sense, inflexible, and it is clear that the Commissioner threatens to carry it out, the Policy as such is not generally reviewable by the Court. The administration of the Act is vested in the Commissioner and he is not answerable to the Court for that administration. Judicial review, it must be recalled, is rooted in the notion of ultra vires (Corporation of the City of Enfield v Development Assessment Commission [2000] HCA 5 (10 February 2000), par 43 and 44; Xu v Minister for Immigration & Multicultural Affairs [1999] FCA 1741 (17 December 1999) par 41 and 42). The judiciary has no role in matters of administration.

19 The mere fact that the act which it is alleged would be a breach of the law will not take place until a future time does not necessarily establish that a question as to the lawfulness of the act is hypothetical. Whether this is so or not will be influenced by the effect that such an act would have. In the present case, all that is to be done is that an assessment will be issued. There is no other action which will have any directly adverse effect upon the applicant such as would normally be found quia timet relief. Mr Robertson SC submits that there are practical consequences of assessment, particularly the fact that tax due and payable is a debt to the Commonwealth, may be sued for, and can be collected by way of statutory garnishee (see ss 204, 208, 209 and 218 of the Act). Decisions such as Oil Basins Ltd v Commonwealth [1993] HCA 60; (1993) 178 CLR 643, even if correct, are distinguishable because they deal with the ascertainment of substantive liability. At least it can be concluded that even if the issue is not technically hypothetical, the lack of any act to scrutinise is a factor against the grant of relief. See the discussion by Kenny J in Hamersley Iron Pty Ltd v National Competition Council (1999) 164 ALR 203 at 225-227.

20 This is particularly true where the act in question, assessment, cannot, for relevant purposes, be challenged otherwise than in accordance with Pt IVC of the Taxation Administration Act 1953 (Cth) by reason of the operation of s 175 and s 177 of the Act (Deputy Commissioner of Taxation (Cth) v Richard Walter Pty Ltd [1995] HCA 23; (1994-1995) 183 CLR 168; Sunrise Auto Ltd v Commissioner of Taxation (1995) 61 FCR 446; Golden City Car & Truck Centre Pty Ltd v Deputy Federal Commissioner of Taxation (1999) 99 ATC 4131; San Remo Macaroni Co Pty Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5138, [1999] FCA 1468). Whilst, as Dawson J pointed out in Oil Basins Ltd (supra), the sections do not in terms relate to the period anterior to assessment, it would, in my opinion, be anomalous to permit issues which could not be agitated after assessment to be agitated before assessment, when it is only the assessment which gives effect to the unlawfulness so far as the applicant is concerned.

21 Mr Robertson SC argued, although somewhat faintly and as a last resort, that in circumstances of this case to assess the applicant on the basis of applying the Policy would be to assess in bad faith so as to bring the applicant within the so-called Hickman principle (based upon the decision of the High Court in R v Hickman; ex parte Fox & Clinton [1945] HCA 53; (1945) 70 CLR 598), relying particularly upon the decision of the Full Court in R v Commissioner of Taxation (WA); ex parte Briggs (1986) 12 FCR 301. This exception has recently been examined at some length by Hill J in San Remo Macaroni Co Pty Ltd v Commissioner of Taxation (supra). In my opinion, this submission is not made out. There is no proper basis for concluding that the Commissioner (by his relevant officers) does not genuinely believe that Pt IVA applies to the arrangements to which the Policy relates. The only doubt which is cast upon this is that the settlement proposal involves one class of taxpayer being assessed on a different basis. Whilst, as I have said, this may raise its own issues, it is not a sufficient foundation for a finding of bad faith on the part of the Commissioner. Ex parte Briggs (supra) is a different, and special, case.

22 In all the circumstances, in my opinion, the fact that the assessment will have some practical consequences for the applicant of the kind that I have mentioned is not sufficient to outweigh the arguments which have been advanced against intervention by the Court in the assessment process which the grant of an injunction would involve. If a declaration has any effect at all, it would also intrude into that process. I also have doubts as to whether, in any event, a declaration is appropriate relief. It would either be a surrogate injunction (which is undesirable) or have no utility (cf Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; (1974) 131 CLR 286 at 307).

23 In those circumstances, I dismiss the application and order that the applicant pay the costs of the respondent.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate:

Dated: 17 February 2000

Counsel for the Applicant:	Mr A Robertson SC and Dr JE Griffiths
Solicitor for the Applicant:	Blake Dawson Waldron
Counsel for the Respondent:	Mr S Gageler
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	11 February 2000
Date of Judgment:	17 February 2000