Setting aside assessments, a high hurdle to jump

Setting aside assessments, a high hurdle to jump

Ross Hocking and Stephen Barr discuss the Federal Court's recent decision regarding the validity of an ATO assessment.

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Man jumping mountains

A notice of tax assessment is conclusive evidence that the assessment was properly made. Historically, taxpayers have faced a difficult challenge when attempting to set aside an assessment as ‘bad’ or being made in ‘bad faith’.

One way is if the assessment is tentative, another is where there is conscious maladministration by the Australian Taxation Office (ATO) in the assessment process. The difficulty of setting aside an assessment on the basis of conscious maladministration is highlighted in last week’s Full Federal Court decision in Gould v Deputy Commissioner of Taxation [2017] FCAFC 1.

The assessments in question were based on information obtained by the Australian Commissioner of Taxation under an exchange of information treaty. Ultimately, the provision of information was held by the Grand Court of the Cayman Islands to be outside the authority of the Cayman Islands Revenue Authority.

Although the taxpayers agreed that the ATO officers had not deliberately made assessments they knew to be incorrect, it was argued the unlawful collection of documents amounted to conscious maladministration and therefore the assessments should be set aside.

The Full Court unanimously dismissed the application. Justice Robertson held there was not conscious maladministration because the ATO officers did not deliberately make assessments that they knew to be incorrect or arbitrary or which were based upon inaccurate information. Nor did the officers intentionally misrepresent information in their possession to make the assessment. Further, the ATO officers had not used the information for any purpose other than to fulfill their duties to make an assessment based on the returns and information in their possession.

The decision confirms that the bad faith necessary for conscious maladministration can’t be ‘constructive’ or established by unwitting involvement in an offence. The decision also usefully summarises some of the key provisions concerning assessments, a complex area of the tax law.

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