Hii vs Federal Commissioner of Taxation

Even the judge admitted this 141 paragraph ruling was the product of a complex case. Mr Hii self-assessed as a Singaporean tax resident during years 2001-2009, an act which the Australian tax office (ATO) amounted to 'fraud or evasion' under Part IVA of the income tax assessment act (1936), because they thought he was a resident of Australia. Therefore, they amended the income tax returns in question.  (Note that income tax in Singapore is lower than Australia.)

At some point in the objection process, the ATO ceded to some arguments of the taxpayer, in turn, reducing his tax liability by amending his tax returns for a second time. However, the ATO maintained that the taxpayer was a resident of Australia and not Singapore - a point the taxpayer disputes and has taken to court, but before that proceeding commences, the taxpayer has a slightly more exotic objection. The objection is as follows; that when the Commissioner of taxation made the second amendments, he failed to reaffirm that the taxpayer had committed fraud or evasion, therefore the assessments are invalid.  (Yes, read it again, that is actually it)

The taxpayer had his work cut out for him considering that even if he was correct, s. 175 provides:

"The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with."

The judge didn't make any surprising conclusions, ruling that the commissioner isn't required to reaffirm 'fraud or evasion' has occurred at every stage of amendment. The judge also ruled that s. 175 applies so that even if the Commissioner was required to reaffirm every point he makes in the act of amending, if his minions in the ATO forgot to perform that step, the assessment would still not be invalidated.  

The judge concluded that an assessment of the Commissioner can only be invalidated due to administrative error where public servants have acted in bad faith, and the only case he could name where such a conclusion was reached happened to be a federal court grilling of the ATO in Donoghue vs FCT earlier this year.

Highlights from the judgement

"In reviewing the first amended assessments in light of a taxpayer’s objection in order to determine if it was correct or should be allowed in whole or in part, it is not necessary for the Commissioner to redetermine, ab initio, all issues relevant to that decision. I accept the submission of the Commissioner that, in deciding the correctness of the original decision, it would be contrary to the concept of a “review” if every decision and consideration previously made by the Commissioner in relation to a taxpayer’s assessable income in any particular year was required to be discarded and made afresh. This absurdity is highlighted in the circumstance where an assessment is affirmed by the Commissioner, either wholly or in part. Certainly, the ITAA 36 does not specify that this procedure must be followed." (p 108)

"Mr Hii does not allege actual bad faith on the part of the Commissioner or his officers. His submission of conscious maladministration is referable only to Mr Hii’s claim that the Commissioner “took an unreasonable view of the law” by failing to form an opinion in relation to avoidance by Mr Hii due to evasion at the objection stage.

There is nothing before me to support such a finding as urged by Mr Hii. Even if the Commissioner took such a view of the law, at most on the material before me the view taken by the Commissioner would simply be wrong at law. I am not persuaded that the conduct of the Commissioner in this case can be described as conscious maladministration, which clearly contemplates bad faith." (p 101 & 102)

More to come

I doubt this is the last we will see of Mr Hii, a look at the case demonstrates he is in dispute with the ATO over sums upwards of $30 million.  He will now be left to argue that he was not a resident of Australia for the income years in question.

The case [2015] FCA 375:  http://www.austlii.edu.au/au/cases/cth/FCA/2015/375.html