New ground of assessment on appeal

Summary

In circumstances where the evidence exclusion rule did not apply the Commissioner was held to be allowed to raise a ground to justify an assessment on appeal which had not been included in the Notice of Proposed Adjustment or raised in the Taxation Review Authority.

Facts

On 31 July 2001 the Commissioner issued a Notice of Proposed Adjustment against the disputant on the basis of tax avoidance. The disputant issued a Notice of Response on 28 September 2001. In March 2003 a second Notice of Proposed Adjustment was issued which was replied to by a second Notice of Response. In this case the disputes procedure was not completed, the Commissioner having issued an assessment before the disputant filed its second Notice of Response. No disclosure notice was issued. The assessment was issued on the basis of the general anti-avoidance provision (BG 1).

The disputant filed a challenge to the assessment in the TRA. The Commissioner defended the assessment on the basis of tax avoidance. The TRA overturned the assessment holding that there was no tax avoidance. The Commissioner appealed to the High Court.

In the course of preparing for the appeal the Commissioner formed the view that, as well as being a tax avoidance arrangement, the transactions were shams and gave notice that he wished to raise the additional argument of sham on appeal. The disputant brought an interlocutory application for an order limiting the Commissioner to the ground of assessment raised in the TRA. The High Court granted the order and held that the Commissioner was not allowed to raise the new argument of sham on appeal. The Commissioner appealed that decision.

Decision

The Appeal Court distinguished the earlier cases of Farnsworth and Duval and held that the legislative scheme, in circumstances where a disclosure notice is not issued, does not confine the parties to the positions formerly taken in their Notices of Proposed Adjustment and Notices of Response.

The Appeal Court held that points which could have been argued before the TRA are able to be advanced on appeal in the High Court, subject to the usual principles as to the circumstances in which new arguments may be advanced on appeal.

Further, that as the new ground of assessment did not increase the amount assessed the time bar in section 108 of the TAA was not applicable and did not prevent the new ground being raised on appeal.

The appeal was allowed and the case remitted to the High Court for the appeal to be heard.