FEDERAL COURT OF AUSTRALIA

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1 FEDERAL COURT OF AUSTRALIA Jonshagen v Commissioner of Taxation [2016] FCA 1545 Appeal from: Application for extension of time to appeal Bjorn Jonshagen v Commissioner of Taxation [2015] AATA 380 File number(s): WAD 86 of 2016 Judge(s): SIOPIS J Date of judgment: 20 December 2016 Catchwords: Legislation: TAXATION application for an extension of time to appeal on a question of law from a decision of the Administrative Appeals Tribunal the applicant claimed deductions for management fees and other expenses incurred by participation in a wine project in Western Australia the Australian Taxation Office issued a position paper stating that in its view the deductions claimed were tax benefits to which Pt IVA of the Income Tax Assessment Act 1936 (Cth) applied the applicant entered into a settlement deed with the Commissioner the Commissioner issued amended income tax assessments whether the applicant was precluded from objecting to the amended income tax assessments by reason of having entered into the settlement deed. Taxation Administration Act 1953 (Cth) Pt IVC, ss 14ZW(1), 14ZX, 14ZY(1), 14ZYA(2), 14ZYA(3) Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1997 (Cth) s 8-1 Income Tax Assessment Act 1936 (Cth) Pt IVA, ss 175A, 177D, 177F, 177F(1)(b) Cases cited: Brown v Federal Commissioner of Taxation (1999) 42 ATR 118 Federal Commissioner of Taxation v McGrouther (2015) 229 FCR 466 Grofam Pty Ltd v Federal Commissioner of Taxation (1997) 36 ATR 493 Bilborough v Federal Commissioner of Taxation (2007) 162 FCR 160 Federal Commissioner of Taxation v Sleight (2004) 136 FCR 211

2 Date of hearing: 13 May 2016 Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 Registry: Division: National Practice Area: Category: Western Australia General Division Taxation Catchwords Number of paragraphs: 102 Counsel for the Applicant: Counsel for the Respondent: Solicitor for the Respondent: The Applicant appeared in person. Ms C Thompson Jackson McDonald

3 ORDERS WAD 86 of 2016 BETWEEN: AND: BJORN JONSHAGEN Applicant COMMISSIONER OF TAXATION Respondent JUDGE: SIOPIS J DATE OF ORDER: 20 DECEMBER 2016 THE COURT ORDERS THAT: 1. The applicant s application for an extension of time to appeal on a question of law, filed on 12 February 2016, is dismissed. 2. The applicant is to pay the respondent s costs to be taxed. Note: Entry of orders is dealt with in Rule of the Federal Court Rules 2011.

4 REASONS FOR JUDGMENT SIOPIS J: 1 On 7 May 2014, the applicant, Mr Bjorn Jonshagen, applied to the Commissioner of Taxation (the Commissioner) for an extension of time to lodge objections to his amended income tax assessments for the income tax years ended 1998 and These amended income tax assessments had been issued by the Commissioner to Mr Jonshagen on 18 July Section 14ZW(1) of the Taxation Administration Act 1953 (Cth) (TAA) provided that objections to income tax assessments under s 175A of the Income Tax Assessment Act 1936 (ITAA 1936) should be lodged, relevantly, within four years after the assessment was given to the taxpayer. 2 The Commissioner considered Mr Jonshagen s application for an extension of time under s 14ZX of the TAA. By a letter dated 3 October 2014, the Commissioner refused Mr Jonshagen s application for an extension of time to lodge his objections. 3 On 19 November 2014, Mr Jonshagen applied for a review of the Commissioner s decision to the Administrative Appeals Tribunal (the Tribunal). On 29 May 2015, the Tribunal affirmed the Commissioner s decision. 4 On 12 February 2016, Mr Jonshagen applied to this Court for an extension of time to appeal on a question of law under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) from the decision of the Tribunal. BACKGROUND 5 In May 1998, the proponents of a vineyard development project called the Chalice Bridge Wine project (the project), published a prospectus offering members of the public an opportunity to participate in a grape growing project located at Rosa Glen in the Margaret River area of Western Australia. The project was to be managed by a public company, Chalice Bridge Estate Ltd (Chalice Bridge). 6 The prospectus offered a person the opportunity to become a grower of grapes on a parcel of land comprising an area of 0.2 hectare which formed part of the Chalice Bridge vineyard which comprised a total of 181 hectares. 7 The project contemplated that the grower would lease the 0.2 hectare parcel of land for a period of 17 years from the lessor, Goldglen Holdings Pty Ltd (Goldglen), a related company

5 - 2 - to Chalice Bridge. At the expiry of that 17 year period, the vines and infrastructure on the grower s leased area would be purchased from the grower by the lessor of the land for $1. 8 In addition, under the project, the grower would engage Chalice Bridge to manage the grower s leased area by establishing and managing the vines on that area; and also to sell the grapes grown to a third party wine company, or to use the grapes in the production of wine by Chalice Bridge. The project contemplated that the grower would pay management fees to the manager and rent to the lessor. To that end, the grower was required to enter into a lease and management agreement with, inter alia, Chalice Bridge and Goldglen. 9 The management fee payable by a grower in the first year was $15,500. The grower was also required to pay as part of the first year s payment, $300 for rent, $1,740 for irrigation costs and $400 for the purchase of the vines. 10 The management fee payable by the grower reduced in the next year to $5,787, and in the year subsequent thereto, to $1, A grower subscribing to the project was also offered the opportunity to enter into a loan agreement with Churchill Finance Pty Ltd (Churchill) to borrow the amounts payable by the grower as management fees. The loan agreement contemplated that in the first two years of the project there would be payment of some of the principal and interest. However, if the grower/borrower elected, also, to pay a guarantee fee of $250 to Chalice Bridge, the lender was limited to recovering any amounts owed by the grower from any monies that may become due to the grower in respect of the sale of the grower s grapes for the duration of the project. This was referred to as a limited recourse loan. 12 Further, the lease and management agreement contemplated that after the first three management fee payments referred to above, the manager s sole resort for the payment of the management fees for the remaining years of the project, was to the grower s revenue from the sale of the grower s grapes. 13 In 1998, Mr Jonshagen applied to be a grower in the project and his application was accepted. Mr Jonshagen also elected to enter into a loan agreement with Churchill in order to borrow the amount payable as management fees. 14 Mr Jonshagen then claimed as a deduction under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) in his 1998 income tax return the sum of $18,395 in respect of the fees paid, and expenses incurred, by reason of his participation in the project. The

6 - 3 - Commissioner issued Mr Jonshagen with a notice of assessment for the 1998 income tax year in accordance with his income tax return. 15 In his income tax return for 1999, Mr Jonshagen, on the same basis, claimed a deduction of $8,995. The Commissioner issued Mr Jonshagen with an assessment for the 1999 income tax year in accordance with his income tax return. 16 On 18 January 2001, the Commissioner wrote to Mr Jonshagen stating that the Australian Taxation Office (the ATO) had reviewed the arrangements comprising the project, and had formed the view that the fees paid by Mr Jonshagen in relation to the project in respect of which he had claimed deductions, were not deductible under s 8-1 of the ITAA The Commissioner set out a number of bases for coming to that view. It is one of the bases referred to by the Commissioner which is the subject of Mr Jonshagen s complaint. This basis was that the deductions claimed in respect of the fees paid by Mr Jonshagen as a participant in the project, comprised a tax benefit in connection with a scheme to which the anti-avoidance provisions in Pt IVA of the ITAA 1936 applied. 17 The Commissioner s reasoning in this respect was published in an ATO position paper titled ATO Position Paper Chalice Bridge (ATO position paper) which accompanied the Commissioner s letter. The ATO position paper described in some detail the component elements of the arrangements comprising the project. These included details of the lease and management agreement entered into by the growers with the lessor and the manager and the financial arrangements between the lender and the manager, and the lender and the growers. 18 The ATO position paper identified the scheme for the purposes of s 177D of the ITAA 1936 and also referred to the eight prescribed factors referred to in s 177D which were to be considered in determining whether the scheme was entered into or carried out for the purpose of enabling the taxpayer to obtain a tax benefit. The Commissioner applied those factors to the constituent elements of the project. The ATO position paper concluded that the promoter carried out the scheme for the dominant purpose of obtaining a tax benefit for the investors. 19 Section 177D then provided as follows: This Part applies to any scheme that has been or is entered into after 27 May 1981, and to any scheme that has been or is carried out or commenced to be carried out after that date (other than a scheme that was entered into on or before that date), whether the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia, where

7 - 4 - (a) a taxpayer (in this section referred to as the relevant taxpayer ) has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme; and (b) having regard to (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) the manner in which the scheme was entered into or carried out; the form and substance of the scheme; the time at which the scheme was entered into and the length of the period during which the scheme was carried out; the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out; and the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi), it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme or of enabling the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme (whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers). 20 The ATO position paper included the following statements in relation to the form and substance of the scheme, being one of the eight prescribed factors to which the Commissioner referred: 2. The form and substance of the scheme: The form of the scheme is that on executing the various agreements, the investor(s) are required to provide their contributions to cover the cost of the initial project fees and may take out a loan to pay these fees. In return for the management fees the manager purportedly managed and operated the business for the investor(s). The substance of the scheme is the creation of an inflated tax deduction, not the provision of funds for the management of underlying business activity.

8 - 5 - The investor buys a tax deduction with minimal funds contributed by themselves and the majority provide by way of a limited recourse loan. Part of this tax benefit is subsequently used to finance the underlying commercial activity. We believe that the fees are excessive relative to the cost of the work carried out on the underlying commercial activity. The excessive nature of the fees is indicated by the arrangement being underpinned by an artificial loan agreement between the Grower and Churchill Finance. At the time Growers entered into the loan arrangement, Churchill Finance was not in a financial position to provide the funds it contracted to advance on behalf of the Grower. The round robin transactions were blatant, artificial and contrived, and resulted in no real money being provided to the manager. The artificial inflation of the consideration and use of the round-robin transactions were present in the scheme for tax reasons, to obtain a greater tax deduction than would otherwise be the case. The arrangements the taxpayer entered into were structured so they received a tax refund greater than the cash contributions they were required to make under the project agreements. The terms of the various agreements limited the actual outgoings of the investor to the payment of only part of the initial project fees. The management fees were able to be sourced by a guaranteed loan, the bulk of the principal and any capitalised interest thereof being limited recourse. The limited recourse finance has the practical effect of securing the bulk of future income from investors. Management fees for the years 4 to 17 may only be recovered from the proceeds of the sale of project produce. The terms of the LMA [ie the Lease and Management Agreement] provides for the forgiveness of debt. 21 The Commissioner s letter of 18 January 2001, also stated that the Commissioner intended to amend Mr Jonshagen s relevant income tax assessments to reflect his stated position in respect of the Chalice Bridge scheme. 22 On 14 February 2002, following the publication of the ATO position paper, the Commissioner announced a settlement offer to participants in affected mass marketed investment schemes, including the Chalice Bridge Wine project. This settlement offer was said to close on 21 June On 8 May 2002, the Commissioner advised Mr Jonshagen that amended income tax assessments would issue in respect of his participation in the project, and provided Mr Jonshagen with information about his objection rights, and a settlement fact sheet.

9 On 24 May 2002, Mr Jonshagen was, on his application, granted an extension of time for acceptance of the settlement offer, from 21 June 2002 to 5 July On 11 June 2002, the Commissioner issued Mr Jonshagen with an amended income tax assessment for each of the 1998 and 1999 income tax years disallowing his claimed deductions in respect of the project, and including in the amended assessments an amount for penalty and interest. 26 On 25 June 2002, Mr Jonshagen sought a further extension of time and sent a facsimile transmission to Mr Michael Carmody of the ATO which described his medical issues. Mr Jonshagen said that he needed a minimum of six months for treatment and that he wanted to consider the project settlement deed in a healthy state. Mr Jonshagen supported his application by enclosing correspondence from his doctor, Dr M Gavin Marsh, referring to Mr Jonshagen s symptoms of anxiety and depression, which, said Dr Marsh, had been developing in the last 2-3 months apparently relating to a problem with his tax. 27 On 26 June 2002, the ATO advised Mr Jonshagen that no further extension of time would be granted. 28 On 8 July 2002, the ATO received a settlement deed relating to the project (the project settlement deed), which was signed by Mr Jonshagen and dated 21 June Under the project settlement deed, the Commissioner agreed to permit a deduction equal to the cash payments contributed by the grower to the project (other than amounts for specified capital items) and to remit any tax shortfall penalty and interest to nil. 30 The project settlement deed, also, contained the following terms binding Mr Jonshagen: I wish to settle this dispute on the following terms. My obligations I agree that is [sic] settling this matter I will: not lodge and [sic] objection/s nor request an amendment or review in respect of the matter; not seek a review of any matters dealt with under this settlement under the Administrative Decisions (Judicial Review) Act 1977 or other legal avenues;

10 - 7 - pay all outstanding debts relating to my participation in Chalice Bridge 1998 either in full within 14 days of receipt of the amended assessment notice or within an agreed period by entering into and meeting the terms of a payment arrangement acceptable to the Tax Office; and General I acknowledge that in settling this matter: No promises, threats or inducements have been made to me; This settlement is commercial in nature; and 31 On 18 July 2003, the Commissioner issued Mr Jonshagen with an amended income tax assessment for each of the 1998 and 1999 income tax years which reflected the terms of the settlement agreed in the project settlement deed. In accordance with the project settlement deed, Mr Jonshagen paid the ATO all amounts that he was required to pay under these amended assessments. 32 In the decade following his execution of the project settlement deed, Mr Jonshagen made complaints regarding statements that had been made in the ATO position paper about the project. These complaints were made to officers of the ATO, the Commonwealth Ombudsman and to members of Parliament. In essence, Mr Jonshagen complained that the ATO position paper contained false statements. 33 Mr Jonshagen complained, in particular, about the following statements in the ATO position paper: (a) (b) (c) [t]he arrangements the taxpayer entered into were structured so that they received a tax refund greater than the cash contributions they were required to make under the project agreements ; [t]he tax deductions claimed by the Growers for the management fees far exceed their cash outlay. If the tax savings exceed the cash contributions, the taxpayer is able to make a profit from the tax deduction alone ; and [t]ax savings generated the necessary funds to meet the required cash payments by the participants on the top marginal tax rate.

11 34 In his complaints to the officers of the ATO, Mr Jonshagen stated that because of what he referred to as the false information in the ATO position paper, the ATO should set aside the project settlement deed and his assessments should be amended so that the deductions which he originally claimed in respect of the project, should be allowed. In response, the ATO consistently declined to set aside the project settlement deed, or to amend the assessments to allow the project deductions. 35 Mr Jonshagen s complaints and the responses thereto, are summarised at [20]-[27] of the Tribunal s reasons for decision of 29 May 2015, and I will not repeat them in these reasons for judgment. THE APPLICATION FOR AN EXTENSION OF TIME TO LODGE OBJECTIONS 36 In his application to the Commissioner for an extension of time to lodge his objections, Mr Jonshagen contended that the extension of time should be granted, the project settlement deed should be set aside and Mr Jonshagen s objections be considered. 37 In his submissions by letter dated 16 May 2014, Mr Jonshagen claimed he signed the project settlement deed under duress. 38 Mr Jonshagen also claimed that the ATO position paper contained false information regarding the difference between the amount of his tax benefit from the deductions claimed and the amount of his contributions to the project. He contended that the following extract from an to him from Assistant Commissioner Collins of the ATO on 10 June 2011, supported his claim: Essentially, the statement made in the ATO position paper that people could make more money from the tax refunds than the cash outlay on the investment was not accurate from the investor perspective, based upon what you and other investors were told in the prospectus. 39 Mr Jonshagen also stated that the ATO position paper contained false information about the nature of the loan made by Churchill to the manager, and the characterisation of the upfront fees as excessive. 40 Mr Jonshagen went on to say that the recommendation by the Pt IVA panel to disallow his deductions was based on the false information in the ATO position paper; and that the false information was before the ATO officer who issued the amended assessment. Mr Jonshagen

12 - 9 - said that the decision to disallow his tax deductions based on false allegations and, so, was not a lawful decision. 41 On 3 October 2014, the Commissioner refused Mr Jonshagen s request for an extension of time in which to lodge objections against the 1998 and 1999 amended income tax assessments. 42 Among the reasons that the Commissioner refused to grant the extension was that Mr Jonshagen executed the project settlement deed, that the deed was enforceable; and that, in executing the deed, Mr Jonshagen had acknowledged that he was not signing the deed by reason of any promise, threat or inducement. THE TRIBUNAL 43 As mentioned, on 29 May 2015, the Tribunal affirmed the Commissioner s decision not to extend the time for Mr Jonshagen to lodge objections in respect of the impugned amended assessments. 44 The Tribunal observed that it was appropriate to apply the approach referred to by Hill J in Brown v Federal Commissioner of Taxation (1999) 42 ATR 118. This approach stated that the factors to be considered included the length of the delay, the taxpayer s explanation for the delay, the circumstances attendant upon the delay, and also the potential merits of the proposed objections. 45 The Tribunal found that that Mr Jonshagen s explanation for the lengthy delay in objecting to the impugned amended assessments was inadequate. The Tribunal observed that while Mr Jonshagen was unwell in 2002 and had not completely recovered, this did not sufficiently explain the delay in lodging objections. 46 The Tribunal also found that Mr Jonshagen s proposed objections were not of sufficient merit to give rise to an arguable case that the impugned amended assessments were excessive. 47 In this regard, the Tribunal observed that Mr Jonshagen s proposed objections were based upon complaints that the ATO position paper contained various incorrect statements. Among statements to which Mr Jonshagen particularly objected, were statements that the participants in the project would get tax savings which exceeded their cash contributions. Rather, there was, said Mr Jonshagen, in his case, a shortfall of $505 between his cash contributions to the project and the tax benefits he would have received if the deductions were allowed.

13 Mr Jonshagen also contended that the ATO paper was wrong to say that the Churchill loan was fraudulent because in 2005, Churchill asked him to pay interest on his outstanding loan. Mr Jonshagen also asserted that the Churchill loan was genuine as Churchill did, in fact, advance those funds to the manager of the project. In support of this assertion, Mr Jonshagen relied on an from the Australian Securities and Investments Commission (ASIC) rejecting his submission to ASIC that ASIC should investigate Churchill s involvement in the project. Mr Jonshagen also said that the statement that the upfront fees were excessive was false. Mr Jonshagen said that the upfront fees charged by Chalice Bridge were no more excessive than those charged by managers in other agricultural projects in respect of which the ATO had given a positive tax ruling. 48 Further, the Tribunal noted that Mr Jonshagen had relied on his evidence that he had participated in the project for the dominant purpose of investing for his retirement and not for the dominant purpose of obtaining a tax benefit. 49 The Tribunal went on to find that Mr Jonshagen s proposed objections were not of sufficient merit to amount to an arguable case that the impugned amended assessments were excessive, because, in essence, they did not address the relevant matters in s 177D of the ITAA 1936 which were required to be considered when determining whether a scheme was one which was carried out for the purpose of enabling the taxpayer to obtain a tax benefit. 50 The Tribunal observed that s 177D identified eight matters to which regard was to be had in determining objectively whether the scheme was carried out for the purpose of enabling the taxpayer to obtain a tax benefit, and Mr Johnshagen s complaints did not address all eight of the factors. The Tribunal went on to say that Mr Jonshagen s complaints were formulated upon a misconstruction of the effect of the ATO paper in describing the substance of the scheme; and that, in any event, Mr Jonshagen s complaints of errors related to the ATO s description of the form and substance of the scheme, which was just one of the eight factors identified in s 177D. 51 The Tribunal also observed that Mr Jonshagen s subjective purpose for participating in the project was irrelevant for the purposes of determining the dominant purpose of the scheme in question. 52 The Tribunal also found that, in any event, Mr Jonshagen signed the project settlement deed, which is a legally enforceable settlement agreement, and in doing so accepted the terms of

14 that deed, including a prohibition to objecting to the 1998 and 1999 amended income tax assessments. There was no basis for not treating the project settlement deed as binding, said the Tribunal. 53 The Tribunal also said that there were public policy considerations which militated against granting an extension of time to lodge objections. This is because there were many other participants in similar investment schemes who had also entered into settlement deeds with the Commissioner and an objection by Mr Jonshagen had the potential to undermine finality which was an important public policy objective in reaching the settlements. THE APPLICATION BEFORE THIS COURT 54 Section 44 of the AAT Act, permits a person to appeal from a decision of the Tribunal on a question of law. 55 The applicant s proposed notice of appeal, attached to his originating application, dated 12 February 2016, identified the following proposed grounds of appeal on a question of law: 1. Whether the AAT was presented with sufficient evidence to warrant an extension of time. 2. Whether the AAT decision is manifestly unreasonable. 3. Whether the purported AAT application of the test was deliberately disingenuous. 56 The applicant later withdrew the third proposed ground of appeal. The first proposed ground of appeal is too vague to qualify as a question of law capable of sustaining an appeal on a question of law under s 44 of the AAT Act. 57 At the hearing, Mr Jonshagen pursued the second proposed question of law, namely, whether the decision of the Tribunal was manifestly unreasonable. 58 In considering whether Mr Jonshagen should have leave to extend time to appeal on a question of law from the decision of the Tribunal, the Court has a discretion but will usually have regard to the length of the delay, the explanation for the delay and whether the proposed appeal was of sufficient merit to warrant an extension of time. Delay 59 As mentioned, the Tribunal s decision was made on 29 May The appeal on a question of law should have been lodged in this Court within 28 days of 29 May The

15 application was commenced by Mr Jonshagen on 12 February Accordingly, the period of delay was about seven and a half months. 60 Mr Jonshagen relied on an affidavit, dated 15 April 2016, in which he gives evidence explaining the delay in filing his application to extend time to appeal. 61 In that affidavit, Mr Jonshagen said that he was informed about the Tribunal s decision over the telephone on 29 May This was shortly before he left for Sweden to visit his siblings. Mr Jonshagen said that he was overseas until late August Mr Jonshagen said that he did not read the Tribunal s decision until he returned to Australia. Mr Jonshagen said that in October 2015, he travelled north of Carnarvon to go camping and windsurfing and during that period he was beyond the reach of and telephone services. 62 Mr Jonshagen also deposed that since his return to Australia in late August 2015, he had attended several appointments with specialists for treatment of his mental and physical illnesses. Attached to Mr Jonshagen s affidavit was a letter from Dr Jane Fitch, who is a consultant psychiatrist. In that letter, Dr Fitch explained that Mr Jonshagen suffered from a depressive disorder and that she had consulted with him in September 2015, December 2015 and March Dr Fitch stated that Mr Jonshagen s depression and his vulnerability to stress has affected his capacity to address written decisions in a timely manner. Dr Fitch stated that his disorder had reduced Mr Jonshagen s cognitive flexibility and his ability to reformulate his case in legal terms. 63 Mr Jonshagen also deposed to the fact that in November 2015, he had written a letter to the presiding member of the Tribunal. 64 The Commissioner submitted that Mr Jonshagen s evidence seeking to explain his delay was inadequate. The Commissioner accepted that there was an explanation for the delay by reason of Mr Jonshagen being overseas. The Commissioner also accepted that Mr Jonshagen suffers from a depressive disorder and other medical conditions. However, said the Commissioner, there was no evidence as to the relationship between the depressive disorder and other medical conditions and the delay that occurred between September 2015 and February I do not accept that the writing of his letter of complaint to the Tribunal is to be taken into account in Mr Jonshagen s favour. The letter is 12 pages long and complains about the

16 Tribunal s decision. It was plainly open to Mr Jonshagen, rather than to have written to the Tribunal, to have filed an application to this Court for an extension of time to appeal. 66 However, whilst I accept that Dr Fitch s letter as to the effect of Mr Jonshagen s depressive disorder on his capacity to deal with legal matters is at a level of generality, the letter does explain that Mr Jonshagen laboured under a disability by reason of his depressive disorder. 67 I am not prepared to hold that the delay, in itself, should constitute a bar to extending time for the filing of Mr Jonshagen s appeal on a question of law. The merits of the proposed appeal on a question of law 68 As mentioned, the Tribunal affirmed the Commissioner s decision not to extend time on three broad grounds, namely, Mr Jonshagen s proposed objections did not make out an arguable case that the impugned amended assessments were excessive, Mr Jonshagen was precluded by reason of the project settlement deed from lodging the objections, and public policy issues. 69 As mentioned, Mr Jonshagen s contention is that the Tribunal s decision is manifestly unreasonable. The effect of the project settlement deed 70 I propose to deal first with this aspect of the application because of the potentially decisive effect on Mr Jonshagen s application, if the Commissioner s contentions on this issue are accepted. 71 The Commissioner contended that Mr Jonshagen s proposed appeal on a question of law enjoys no prospect of success because he had entered into the project settlement deed, whereby he had agreed to give up his right to file objections in respect of the impugned amended assessments, and that the deed was legally binding. 72 In response, Mr Jonshagen contended that the fact that he executed the project settlement deed and had received benefits under that deed, did not preclude him from lodging objections under Pt IVC of the TAA in respect of the two impugned amended assessments. This is because, contended Mr Jonshagen, the right to lodge an objection was a statutory right which remained intact, notwithstanding, the project settlement deed. 73 The Commissioner responded by contending that by entering into the project settlement deed, Mr Jonshagen had agreed to waive his statutory right under a legally enforceable agreement, upon which the Commissioner was entitled to rely. Therefore, contended the Commissioner,

17 unless the project settlement deed was set aside, Mr Jonshagen had no continuing statutory right to object, and it followed that Mr Jonshagen s application to extend time to lodge objections he was not entitled to lodge, was misconceived. 74 The question of whether a statutory right arising under the TAA could be waived was considered by the Full Court in Federal Commissioner of Taxation v McGrouther (2015) 229 FCR 466 (McGrouther). 75 In that case, a taxpayer had lodged an objection to an income tax assessment. 76 Section 14ZY(1) of the TAA provided that the Commissioner had to decide whether to allow or disallow a taxpayer s objection to an income tax assessment. Section 14ZYA(2) relevantly provided that if no such decision had been made within 60 days of the lodgement of the objection, the taxpayer could give the Commissioner a written notice requiring him or her to make an objection decision. Section 14ZYA(3) then provided that if the Commissioner had not made a decision within a further 60 days following the giving of the notice, the Commissioner was taken to have made a decision to disallow the objection under s 14ZY(1) of the TAA. 77 The taxpayer s objection was not decided within the original 60 day period. The taxpayer then gave a notice under s 14ZYA(2). The consequence of having given this notice was that if the Commissioner s objection decision was not made within the period of 60 days following the giving of the notice, the Commissioner would have been taken to have disallowed the objection. Before the expiry of the second 60 day period, the taxpayer withdrew the s 14ZYA(2) notice. The question then arose as to whether a taxpayer was at liberty to withdraw a s 14ZYA(2) notice. The Full Court found that the taxpayer was at liberty to withdraw the s 14ZYA(2) notice. 78 The Full Court in McGrouther found that the maxim quilibet potest renunciare juri pro se introducto (any person can waive a statutory provision that is entirely for his or her own benefit) applied. The Full Court went on to find that the right to give a notice under s 14ZYA(2) of the TAA and the right to a deemed objection decision by operation of s 14ZYA(3), were rights that were personal to the taxpayer exercising them and did not have any wider public purpose. 79 In McGrouther, at [25], Pagone and Davies JJ observed as follows:

18 The power conferred upon a taxpayer by s 14ZYA(2) to give the Commissioner a notice is purely permissive and entirely at the discretion of the taxpayer. The power is conferred upon the taxpayer purely for the taxpayer s benefit in any individual case and may be exercised or not at will. 80 In my view, the maxim applied by the Full Court in McGrouther to the right to give a notice under s 14ZYA(2), also applies to the right given to a taxpayer under s 175A of the ITAA 1936 and Pt IVC of the TAA to lodge an objection to an income tax assessment. Such a statutory provision is entirely for the benefit of the taxpayer. The observations of Pagone and Davies JJ, referred to at [79] above, are equally germane to the characterisation of the right of a taxpayer to lodge a Pt IVC objection. 81 In my view, therefore, Mr Jonshagen s statutory right to object to each of the impugned amended assessments was capable of being waived by Mr Jonshagen. Mr Jonshagen waived that right by entering into the project settlement deed whereby he agreed not to lodge an objection in respect of each of the impugned amended assessments. 82 The Commissioner has the power to enter into binding compromise agreements whereby he or she is able to settle disputes with taxpayers in respect of tax debts (Grofam Pty Ltd v Federal Commissioner of Taxation (1997) 36 ATR 493). 83 Once the Commissioner has entered into a settlement agreement then the ordinary rules of contract law will apply to the settlement agreement. This will include the common law as to the circumstances in which a contract may be set aside. In the case of Bilborough v Federal Commissioner of Taxation (2007) 162 FCR 160, Kiefel J (when her Honour was a judge of this Court) observed at [19]: Importantly, the power is one to enter into a consensual arrangement with a taxpayer, one which may bind the Commissioner. The exercise of it may bring an agreement into effect, but any rights or obligations arising from it owe their existence to the recognition which the general law would give. 84 It follows, therefore, that unless the Commissioner, being the other party to the project settlement deed, agrees to set aside the project settlement deed; or a court of competent jurisdiction orders that the project settlement deed be set aside on a ground which is recognised under contract law, the Commissioner is entitled to treat the project settlement deed as being in effect, and, consequently, to rely upon the efficacy of that deed.

19 The evidence shows that Mr Jonshagen has for a number of years now sought to persuade the Commissioner to agree to set aside the project settlement deed. 86 Among the contentions which Mr Jonshagen has advanced in order to persuade the Commissioner to set aside the deed, has been the contention that he was the victim of duress in that the Commissioner, knowing that he was suffering from stress and mental anxiety, acted in an overbearing fashion by not giving him a sufficient period of time within which to consider whether to enter into the project settlement deed. 87 The Commissioner has not been persuaded by Mr Jonshagen s contentions to agree to set aside the project settlement deed. The Commissioner was at liberty to take that position. 88 Further, Mr Jonshagen has not commenced any action in a court of competent jurisdiction against the Commissioner to establish that he is entitled on the application of ordinary contractual principles to set aside the project settlement deed. 89 In those circumstances, the Commissioner is entitled to continue to rely upon the project settlement deed as comprising and evidencing a legally effective waiver by Mr Jonshagen of his statutory right to object to the impugned amended assessments. 90 It follows, therefore, that even if Mr Jonshagen had an arguable case that the project arrangements were not a scheme which was entered into or carried out for the purpose of giving a tax benefit, Mr Jonshagen would, nevertheless, by reason of having entered the project settlement deed, be precluded from seeking to ventilate that case by the lodging of objections to the impugned amended assessments. 91 Therefore, Mr Jonshagen s contention that it was manifestly unreasonable for the Tribunal to have decided that he was precluded from lodging an objection to the impugned amended assessments, is without merit. 92 The consequence of this finding is that it is unnecessary for me to consider whether there is merit in Mr Jonshagen s contention that the Tribunal acted in a manifestly unreasonable manner in concluding that his proposed objections based on his claims that the ATO position paper contained false information, did not give rise to an arguable case that he had a valid objection. 93 This is because, as I have mentioned, even if Mr Jonshagen did have an arguable case, that the impugned amended assessments were excessive, the Commissioner and the Tribunal

20 would, nevertheless, be justified in finding Mr Jonshagen was precluded from objecting on the grounds that he had waived his right to do so. 94 It follows that Mr Jonshagen s application for an extension of time to appeal on a question of law from the Tribunal s decision of 29 May 2015 should be dismissed. 95 Notwithstanding my finding that Mr Jonshagen has no prospect of success in his proposed appeal because of having entered into the project settlement deed, I will have regard, briefly, to Mr Jonshagen s contention that the Tribunal s decision that his proposed objections did not give rise to an arguable case that the impugned amended assessments were excessive, was manifestly unreasonable. 96 As I have mentioned, Mr Jonshagen s proposed objections are founded on the allegation that the impugned amended assessments are not lawful because they were based upon an ATO position paper which contained false statements. That position paper was published at least two years prior to the issuing of Mr Jonshagen s impugned amended assessments. 97 The difficulty for Mr Jonshagen s proposed objections is that there is authority that the production of a notice of assessment will be conclusive evidence of the due making of the assessment, and that it is not open to challenge the lawfulness of the making of the assessment, because errors were made in the process leading up to the making of the assessment (Federal Commissioner of Taxation v Sleight (2004) 136 FCR 211 (Sleight); Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd ( FCR 410 at [55]-[59]). 98 In Sleight, the Commissioner made a determination under s 177F(1)(b) of the ITAA 1936 to disallow a deduction on the basis that it was a tax benefit that had been obtained in connection with the scheme to which Pt IVA applied. The taxpayer objected to the assessment on the basis that the Commissioner s delegate had made an error as to the amount of the taxpayer s benefit in making the determination under s 177F. 99 The Full Court found that the fact that the Commissioner had made an error in the determination was not a valid basis upon which to challenge the validity of the assessment. At [107], Hill J observed: In other words, it is not open to a taxpayer to challenge an assessment under Pt IVA by showing some error in the making of that determination.

21 Further, at [110], Hill J observed: The question whether the Commissioner s discretion as to whether there was a scheme to which Pt IVA applied miscarried is thus not an issue in an appeal. Rather the issue will be, relevant to the present appeal, whether, the determination having been made, there was a scheme to which the provisions of Pt IVA applied and if so, whether there was a tax benefit obtained in connection with that scheme. These will be matters of fact and the burden will lie on the taxpayer to show that objectively there was no scheme in connection with which the taxpayer obtained a tax benefit. If the taxpayer satisfies that burden he or she will have shown the assessment was excessive. That will not be shown by the taxpayer demonstrating that the person who made the determination in some way erred in making it so that the discretion conferred upon the Commissioner miscarried. 101 Accordingly, Mr Jonshagen s proposed objections, directed as they are to impugning the lawfulness of the making of the amended assessments by reference to errors made in the ATO position paper, as part of the process leading up to the issuing of the amended assessments, fall short of constituting objections which would enjoy a reasonable prospect of success. 102 As mentioned, Mr Jonshagen s application for an extension of time to appeal on a question of law is dismissed. I will hear the parties on costs. I certify that the preceding one hundred and two (102) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate: Dated: 20 December 2016