TaxCoach for the Third Sector
May 29, 2018
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Specialist disciplines, including in law, can occasionally be myopic and inward-looking.

– Per Kirby J, Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146

Where the Commissioner of Taxation forms an opinion that relevant behaviour attributable to a taxpayer constitutes fraud or evasion, there is no time limit for the Commissioner to make an assessment of tax liability of that taxpayer for the year or years affected by that presumed fraud or evasion:  item 5 of s 170(1) of the Income Tax Assessment Act 1936.

Can the Commissioner rely on item 5 if there has been error in forming that opinion?

Yes, according to the Full Court of the Federal Court: Chhua v Commissioner of Taxation [2018] FCAFC 86 (06 June 2018).

In so holding, the Full Court has tramped the well-beaten path blazed by the majority of the High Court in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146. In that perspective, the only flaws which can render a purported assessment not to be an assessment are:
• Matters which render the assessment at best tentative or provisional; and/or
• Conscious maladministration on the part of the Commissioner.

Kirby J in Futuris, on the other hand, warned against failure to keep proper watch on developments in administrative law, in the law of proper decision-making. Slogging onward, without evaluation of foundations for proper decision-making, is at best ‘myopic and inward looking’.

As framed for the taxpayer in Chhua, an assessment issued without power is not an “assessment”. The retort of the Full Court was, that cannot be:

“The word “assessment” is defined in the dictionary contained in s 995-1 of the 1997 Act as “the ascertainment of the assessable amount.” No part of that definition invokes issues of power. In our view, an assessment issued without power would simply be an assessment issued in circumstances of non-compliance with the provisions of the 1936 Act or 1997 Act” , Chhua, at para.32.

For this commentator, there is apparent a clear need for detailed exposition of the elements and links which shape correct opinion on presence of fraud or evasion, for purposes of item 5, whether by statutory revision, or by High Court enlightenment.

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