PRESERVING THE CONSTITUTIONAL FUNCTION OF COURTS AND INCREASING CONFIDENCE IN THE TAX SYSTEM: TIME TO RECONSIDER FUTURIS.

• Date: 01 August 2019
• Author: Azzi, John

Contents I Introduction II The Constructional Argument A The Power to Amend an Assessment B When Is Formation of Opinion a Jurisdictional Fact? C The Statutory Scheme for Overturning an 'Excessive' Assessment D Part IVC: The Mechanics E Discerning the Privative Scope of s 175 F Futuris and Why Intermediate Courts Should Reconsider Their Application of It III The Constitutional Argument A Judicial Review Is Integral to the Rule of Law B Judicial Review of the Commissioner's State of Satisfaction about Fraud or Evasion C Federal Judicial Power IV Concluding Observations I Introduction

Notwithstanding substantive reforms in 2006 (1) to both the assessment and binding rulings regimes designed, primarily, to improve taxpayer confidence in the self-assessment tax system and ensure 'the right balance has been struck between protecting the rights of individual taxpayers and protecting the revenue for the benefit of the whole Australian community', (2) my article published in 2016 found that this has not occurred, at least in relation to rulings. (3)

It was shown that the way the plurality's decision in Federal Commissioner of Taxation v Futuris Corporation Ltd ('Futuris') (4) has subsequently been applied by the Federal Court, in conformity with Besanko J's reasons in Roberts v Deputy Commissioner of Taxation ('Roberts'), (5) causes irremediable Detriment (6) for taxpayers adversely affected by a decision of the Commissioner to revise an earlier favourable private ruling or issue an inconsistent assessment without procedural fairness. (7) It was further foreshadowed that this may not be 'ultimately sustainable', (8) particularly given the focus of pt IVC of the Taxation Administration Act 1953 (Cth) ('Administration Act') on outcomes rather than procedure. (9)

Since then, the Full Federal Court has handed down its decision in Chhua v Federal Commissioner of Taxation ('Chhua') which, inter alia, purports to once and for all settle any lingering doubts that the earlier cases were right to construe Futuris as exhaustively defining the two jurisdictional errors against which s 175 of the Income Tax Assessment Act 1936 (Cth) ('1936 Act') offers no protection. (10) In the process, their Honours disagreed (11) with Porter J in Woods v Deputy Commissioner of Taxation ('Woods') (12) for suggesting other wise. (13)

Focusing on the Commissioner's power under item 5 of s 170(1) of the 1936 Act to amend an assessment at any time if the Commissioner is 'of the opinion there has been fraud or evasion', this article argues that intermediate courts are, respectfully, wrong to continue to suggest the plurality's decision in Futuris has conclusively shut the gate on jurisdictional error relief. As will appear, construing Futuris in the manner suggested by the Federal Court fails to fully recognise the 'rights-protective [effects]' (14) of the Constitution, in particular s 75(v) (and its replicant in s 39B of the Judiciary Act 1903 (Cth) (Judiciary Act')), as well as subsequent High Court authority suggesting it 'is neither necessary, nor possible, to attempt to mark the metes and bounds of jurisdictional error'. (15)

Kirby J expressed similar concerns in his dissenting judgment in Futuris, remarking that expansion of the protective ambit of s 175 of the 1936 Act in the manner suggested by the plurality would not only 'breathe validity into a purported "assessment" that was not in law an "assessment" as contemplated by the Act', (16) but would also diminish the 'ambit of the remedies' provided by s 75(v) and s 39B. (17)

In this article, it will be shown that the growing tendency of the Federal Court to summarily dismiss judicial review applications which do not assert either of the two jurisdictional errors identified by the plurality in Futuris is, respectfully, apocryphal, particularly as the issue in Futuris concerned the validity of an assessment rather than whether the Commissioner had power to make the assessment. The current practice is equally apocryphal because it proceeds on the questionable premise that pt IVC provides an adequate alternative to judicial review in all cases.

It will be shown that current jurisprudence expansively expounding the privative ambit of s 175 (in accordance with the plurality's reasons in Futuris) renders the legislative criteria of fraud and evasion nugatory in most cases. As s 175 is presently construed, courts are impotent to safeguard against the arbitrary application by the Commissioner of these criteria for liability, thus making the tax practically incontestable because the validity of the assessment will depend on the opinion of the Commissioner. (18)

As will appear, the judicial process in pt IVC is a poor substitute for that available under s 75(v) of the Constitution and s 39B of the Judiciary Act, whereby the taxpayer can petition either the High Court or the Federal Court respectively in their original jurisdictions to invalidate an exercise of the amendment power on the ground that there was 'no evidence' to justify the opinion of fraud or evasion, or that the requisite opinion was not reasonably reached. (19) By contrast, the taxpayer cannot succeed in discharging the statutory onus of proof in the absence of evidence 'affirmatively' proving that the preconditions of fraud or evasion did not exist. (20)

Both s 75(v) and s 39B introduce an 'entrenched minimum provision of judicial review' (21) that provides the 'mechanism by which the Executive is subjected to the rule of law' (22) (on the assumption of which the Constitution is framed). (23) In the words of Brennan J:

Judicial review is neither more nor less than the enforcement of the rule of law over executive action; it is the means by which executive action is prevented from exceeding the powers and functions assigned to the executive by law and the interests of the individual are protected accordingly. (24) Toward this end, courts

should provide whatever remedies are available and appropriate to ensure that those possessed of executive and administrative powers exercise them only in accordance with the laws which govern their exercise. The rule of law requires no less. (25) And they must intervene 'where it is obvious that the public body, consciously or unconsciously, are acting perversely'. (26)

To expound the preceding proposition that a dangerous and unsound precedent is developing in Australia where, despite previous historical practice, intermediate courts are now summarily dismissing judicial review applications which do not allege either a tentative assessment or one tainted with 'conscious maladministration'--the two errors identified by the plurality in Futuris (27)--the paper is organised as follows:

* Part II (The Constructional Argument): bearing in mind that 'whether an issue is jurisdictional is ultimately a matter of statutory construction, (28) this part examines the amendment power in item 5 of s 170(1) of the 1936 Act and argues that a failure to form the requisite opinion constitutes jurisdictional error, albeit not of the kind identified in Futuris. To this end, it is argued that the decision of the plurality in that case does not foreclose all instances whereby an assessment will answer the statutory description of assessment in s 175, given the particular and fairly unique circumstances arising in Futuris.

* Part III (The Constitutional Argument): this part demonstrates that confining judicial review to the two jurisdictional errors identified by the plurality in Futuris is repugnant to the rule of law. In addition, it is argued that construing s 175 so as to render all errors, save the two identified in Futuris, non-jurisdictional, stultifies the exercise of federal judicial power to conclusively determine a matter in respect to which original jurisdiction has been conferred on the court.

II The Constructional Argument

A The Power to Amend an Assessment

The power and duty of the Commissioner to make an assessment resides in s 166 of the 1936 Act. Relevantly, the Commissioner 'must make an assessment' of the amount of taxable income of any taxpayer and the amount of tax payable thereon, from the returns and any other information in his possession, or based on other sources. (29)

The expression 'assessment' is relevantly defined in s 6(1)(a) of the Act as 'the ascertainment ... of the amount of taxable income ... and ... of the tax payable on that taxable income'. This definition 'takes up' (30) the description of assessment articulated by Isaacs J in R v Federal Commissioner of Taxation; Ex parte Hooper (31) where his Honour relevantly said an assessment 'is the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer'. (32)

The Commissioner may amend an assessment either 'within 2 years after the day on which the Commissioner gives notice of the assessment' (for individuals and small business entities) (33) or 'within 4 years' of that date (for large taxpayers). (34) The period for amendment was shortened, for the vast majority of taxpayers, from a period of four years either from the day on which the tax become due or from the day payment was made in an effort to reduce taxpayer uncertainty:

Another way to reduce uncertainty is to give earlier finality to taxpayers who have tried to comply by shortening the period in which their assessment can be amended to increase their liability. Once the Tax Office can no longer amend a particular year's assessment, taxpayers can stop worrying about whether they 'got it right'. (35) As mentioned, however, the Commissioner may amend an assessment at any time if of the opinion there has been fraud or evasion. This is because taxpayers 'who engage in calculated behaviour to evade tax should remain permanently at risk'. (36)

The term 'fraud' is not statutorily defined. However, it is well established that fraud exists where a person makes a false...