FEDERAL COURT OF AUSTRALIA

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1 FEDERAL COURT OF AUSTRALIA Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2017] FCAFC 164 Appeal from: Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2015] FCA 1381 File number: WAD 738 of 2015 Judges: GREENWOOD, MCKERRACHER AND MOSHINSKY JJ Date of judgment: 13 October 2017 Catchwords: TAXATION consideration of the construction to be attributed to s of the Taxation Administration Act 1953 (Cth) conferring a power on the Commissioner to require you to give the Commissioner security for the due payment of an existing or future *tax-related liability of yours consideration of the subject matter of the power and the factors informing the exercise of the power CONSTITUTIONAL LAW consideration of whether s is a valid law of the Commonwealth consideration of whether the provision is a law with respect to the power conferred on the Parliament by s 51(ii) of the Constitution to make laws with respect to taxation consideration of whether s is a provision for the collection of tax consideration of whether the provision is an incident of or ancillary to the power conferred by s 51(ii) CONSTITUTIONAL LAW consideration of whether a law conferring power upon the Commissioner of Taxation to require the giving of security in the form of a mortgage of real estate for the due payment of an existing or future *tax-related liability of yours is a law with respect to the acquisition of property from the appellant for a purpose in respect of which the Parliament has the power to make laws, within s 51(xxxi) of the Constitution Legislation: Constitution, ss 51(ii), 51(xxxi) and 51(xxxix) A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 7-1, 7-5, 7-10, 7-15, 9-5, 9-10, 9-20, 9-30, 9-40, 17-5, 27-5, 27-10, 27-30, 31-5, 31-8, 31-15, 33-3, 33-5, 33-15, 33-99, 75-5, 75-10, and Acts Interpretation Act 1901 (Cth), ss 15A, 15AA Income Tax Assessment Act 1936 (Cth), ss 6(1), 161, 161A, 162, 163, 166, 167, 168, 169, 174

2 Income Tax Assessment Act 1997 (Cth), ss 3-10, 4-5, 4-10, 4-15, 5-5, 5-15, 995(1) Taxation Administration Act 1953 (Cth), Schedule 1, ss 155-5, , , , 250-5, , , , , and Cases cited: Attorney-General (Commonwealth) v Schmidt (1961) 105 CLR 361 Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 Bluebottle UK Limited v Deputy Commissioner of Taxation (2007) 232 CLR 598 Clunies-Ross v The Commonwealth (1984) 155, CLR 193 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) (2015) 257 CLR 544 Commissioner of Taxation v Clyne (1958) 100 CLR 246 Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146 Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2015] FCA 1381 Mack v Commissioner of Stamp Duties (NSW) (1920) 28 CLR 373 Minister for the Army v Dalziel (1944) 68 CLR 261 Moore v The Commonwealth (1951) 82 CLR 547 Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 179 CLR 155 Suntory (Aust) Pty Ltd v Federal Commissioner of Taxation (2009) 177 FCR 140 Weis, Lael K, On Just Terms, Revisited (2017) 45 Federal Law Review 223 Date of hearing: 3 August 2016 Date of last submissions: 3 August 2016 Registry: Division: National Practice Area: Category: Western Australia General Division Taxation Catchwords Number of paragraphs: 148

3 Counsel for the Appellant: Solicitor for the Appellant: Counsel for the Respondent: Solicitor for the Respondent: Mr M L Robertson QC with Mr J W Fickling Robson Legal Mr J C Vaughan SC with Mr R S French Australian Government Solicitor

4 ORDERS QUD 738 of 2015 BETWEEN: AND: KERIS PTY LTD AS TRUSTEE FOR THE 1748 BRADLEY STREET TRUST ACN Appellant DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGES: GREENWOOD, MCKERRACHER AND MOSHINSKY JJ DATE OF ORDER: 13 OCTOBER 2017 THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The appellant pay the respondent s costs of and incidental to the appeal. Note: Entry of orders is dealt with in Rule of the Federal Court Rules 2011.

5 REASONS FOR JUDGMENT THE COURT: Background 1 On 25 September 2014, an officer (delegate) of the respondent (the Commissioner ) gave notice (a Notice to Give Security ; the Notice ) under s of Schedule 1 of the Taxation Administration Act 1953 (Cth) (the Administration Act ) to the appellant ( Keris, in its trustee capacity) requiring it to give security to the Commissioner in an amount of $350,000 for the due payment of a tax-related liability. The Notice required Keris to give security to the Commissioner by means of a mortgage over its real estate assets as: [t]he Commissioner believes that the security should be provided because he anticipates that Keris Pty Ltd as trustee for the 1748 Bradley Street Trust will incur tax-related liabilities in excess of $373,000 and there is a risk that the company will not pay those liabilities. 2 The Notice also recites that the mortgage: [emphasis added] is to secure an amount of $350,000 in respect of any tax-related liabilities incurred by the company as a result of the sale of real estate in which the company presently has an interest, and which are not paid by the due date. 3 The Notice required Keris: [emphasis added] to give a signed mortgage over all real estate owned by [it] by 4.00pm on 29 October The Notice also recites that: t) Auditors from the Australian Taxation Office have estimated that the sale of the subdivided properties owned by [Keris, in its trustee capacity] will cause [Keris, in its trustee capacity] to incur GST liabilities of approximately $373,886, after taking into account development costs. [emphasis added] 5 The reference, to incur GST liabilities in the quoted passage at [4] of these reasons should be understood as a reference to liabilities relating to GST, that is, tax that is payable under a *GST law and imposed as goods and services tax by one or more of the Commonwealth Acts recited in the definition of GST in s of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act ), and the term *GST law has the meaning ascribed to it

6 - 2 - in s of that Act. A term bearing an asterisk has the meaning given by s of the GST Act. 6 The Notice was given in reliance upon the exercise of a power conferred by s of Schedule 1 to the Administration Act and is said by the Commissioner to satisfy the requirements of s of Schedule 1. 7 Although, obviously enough, it will be necessary to examine the text of s and related provisions of the Administration Act and the context of those provisions within the relevant Part and Divisions of that Act and the purpose to be served by s , it is enough for present purposes to note that s confers a discretionary power upon the Commissioner to require a person to give security for the due payment of an existing or future *tax-related liability of that person if the Commissioner has reason to believe that the person is establishing or carrying on an enterprise in Australia and intends to carry on that enterprise for a limited time only, or, the Commissioner reasonably believes that the requirement to give such security is otherwise appropriate having regard to all relevant circumstances. 8 In September 2014, the appellant was the owner of a large tract of land which, as part of its business, it proposed to subdivide into 28 lots and then sell each of the subdivided lots: Primary Judge ( PJ ), Siopis J at [1]; Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2015] FCA This is the subdivision the subject of the analysis by the auditors described at [4] of these reasons. 9 On 25 September 2014, Ms Tina Michelle Bazzo was the sole shareholder of Keris and had, since 1 May 2014, been a director of Keris: PJ, [3]. 10 In response to the appellant s request for reasons for the decision to issue the Notice, the Commissioner, by a letter dated 12 December 2014, provided the following Statement of Reasons: I refer to your letter dated 21 October 2013, requesting that I provide you with reasons pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 ( the ADJR Act ) in relation to my decision to issue a Notice to Give Security ( the Security Bond Demand ) to your client under Subdivision 255-D in Schedule 1 to the Taxation Administration Act 1953 ( TAA 1953 ), requiring your client, Keris Pty Ltd as trustee for 1748 Bradley Street Trust, to provide $350,000 of security in the form of a mortgage over its real estate assets. The Security Bond Demand requires your client to give security in relation to an amount of at least $373,000 of tax-related liabilities which it is expected to incur as a

7 - 3 - result of the sale of trust assets. I set out my reasons for my decision to issue the Security Bond Demand, below. A. Finding on material questions of fact in relation to the decision (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) Tina Bazzo is the sole shareholder of Keris Pty Ltd and has been its director since 1 May Keris Pty Ltd is the trustee of the 1748 Bradley Street Trust. On 10 July 2013, Keris Pty Ltd purchased property ( the Land ) located at 1748 Bradley Street, Southern River for an amount of approximately $950,000 from Westend Asset Pty Ltd. The director of Westend Asset Pty Ltd was Tina Bazzo s mother, Josephine Lynette Bazzo. Westend Asset Pty Ltd went into court appointed liquidation on 28 October 2013 in respect of portions of a tax liability totalling $4,580,356. At the time at which the Security Bond Demand was issued, ATO auditors had observed that a document detailing the sale of the Land from Westend Assets Pty Ltd to Keris Pty Ltd bore annotations added by staff of the Western Australian Office of State Revenue which indicated to them that the Land had been purchased by Keris Pty Ltd in its capacity as trustee of the 1748 Bradley Street Trust. At the time at which the Security Bond Demand was issued, ATO auditors formed an opinion that a subject to dealing marking on the title indicated that the Land was being subdivided, with new titles expected to issue on 30 September At the time at which the Security Bond Demand was issued, Keris Pty Ltd had not registered for an ABN or for GST, either in its own right or in its capacity as trustee of the 1748 Bradley Street Trust. Since 17 January 2002, Tina Bazzo has been a director of Gucce Holdings Pty Ltd, a company which owed in excess of $62 million in unpaid tax liabilities as at the time at which the Security Bond Demand was issued. ATO auditors concluded that Gucce Holdings Pty Ltd had engaged in a sham arrangement so as to inappropriately receive a claim to input tax credits. Gucce Holdings Pty Ltd contest the efficacy of a Notice issued pursuant to section of Schedule 1 to the Taxation Administration Act 1953 (a garnishee notice) by asserting that lease payments made by the recipient of the notice were trust assets, rather than assets of Gucce Holdings Pty Ltd in its non-trustee capacity. In support of the company s contention, Tina Bazzo gave Amon Barton, an officer in the Australian Taxation Office, a copy of a lease agreement which purported to show that the lessor was a trust, rather than Gucce Holdings Pty Ltd in a non-trustee capacity. The lease document appeared to have been doctored to give that appearance, given that it was otherwise identical (including to the extent of handwritten notations) to the copy of the lease provided by the lessee, which showed that

8 - 4 - Gucce Holdings Pty Ltd was the lessor. (xi) While she was director of another company Paramount View Pty Ltd Tina Bazzo failed to cause that company to pay tax liabilities in excess of $588,000, almost all of which is irrecoverable-at-law as a result of the company entering an insolvency administration. (xii) (xiii) (xiv) (xv) (xvi) In the Administration of Paramount View Pty Ltd, Gucce Holdings Pty Ltd proved for a debt of approximately $7 million and claimed that it had a fixed and floating charge over the assets of Paramount View Pty Ltd. In a May 2013 report to creditors, the administrator of Paramount View Pty Ltd observed that Tina Bazzo s granting of the fixed and floating charge (at a time when she was director of both companies and should have known that Paramount View Pty Ltd was insolvent) was a breach of her director s duties. The administrator also opined that there were grounds for an insolvent trading action against Tina Bazzo arising from her directorship of Paramount View Pty Ltd. Until 2 September 2011, Tina Bazzo was a director of Gundaroo Investments Pty Ltd during which time the company incurred more than $3 million of unpaid tax liabilities. At the time at which the Security Bond Demand was issued, Tina Bazzo was a director of 220 St George s Terrace Pty Ltd, a company which had an unpaid tax liability of in excess of $98,000 arising from its role a trustee of the 220 St George s Trust. Between 15 January 2007 and 19 November 2012, Tina Bazzo was the director of Parliament Place Pty Ltd, a company which, under her directorship, incurred tax liabilities exceeding $1.1 million, almost half of which will be irrecoverable-at-law as a result of the company entering into an insolvency administration and subsequent Deed of Company Arrangement. (xvii) At the time the Security Bond Demand was issued, Tina Bazzo was the director of six companies which had outstanding tax returns: Byford River Pty Ltd; 70 Thomas Street Pty Ltd; Flynn Drive Holdings Pty Ltd; Gucce Holdings Pty Ltd; Moonspark Nominees Pty Ltd and Silverleaf Enterprises Pty Ltd. (xviii) On 23 September 2014, Amon Barton spoke with a representative of the mortgagee who has mortgages on the real estate owned by Keris Pty Ltd as trustee for the 1748 Bradley Street Trust. The mortgagee did not express any opposition to the prospect of Keris Pty Ltd granting a subordinate mortgage to the Commissioner over the real estate. B. Evidence or other material on which these findings were based: a. The 31 May 2013 Report to Creditors compiled by the Administrator of Paramount View Pty Ltd; b. Information available on the database maintained by ASIC in respect of Tina Bazzo s directorships and shareholdings and the directorships and shareholdings of other companies;

9 - 5 - c. A Transfer of Land document dated 10 July 2013, in respect of the transfer of title in Lot 1748 on Plan 3315 from Westend Asset Pty Ltd to Keris Pty Ltd; d. Information held on ATO systems in relation to lodgement obligations and outstanding tax liabilities of Keris Pty Ltd, Gundaroo Investments Pty Ltd, 220 St George s Terrace Pty Ltd; Gucce Holdings Pty Ltd, Parliament Place Pty Ltd, 70 Thomas Street Pty Ltd, Byford River Pty Ltd, Flynn Drive Holdings Pty Ltd, Moonspark Nominees Pty Ltd, Silverleaf Enterprises Pty Ltd and Paramount View Pty Ltd; e. A garnishee notice issued on 3 April 2013 under section of the TAA 1953 in respect of tax liabilities owed by Gucce Holdings Pty Ltd. f. The copy of a lease dated 30 September 2009 purportedly between Gucce Holdings Pty Ltd as trustee for the Gucce trust (as Landlord) and Super Cheap Auto Pty Ltd (as Tenant) which was furnished by Gucce Holdings Pty Ltd pursuant to a of the TAA 1953 Notice; g. The copy of a lease dated 30 September 2009 purportedly between Gucce Holding Pty Ltd (as Landlord) and Super Cheap Auto Pty Ltd (as Tenant) which was furnished by Super Cheap Auto Pty Ltd; h. A written submission prepared by Amon Barton of ATO Strategic Recovery which recommended the issue of a Notice under s of Schedule 1 to the TAA 1953 to Keris Pty Ltd as trustee for the 1748 Bradley Street Trust; i. Subdivision 255-D in Schedule 1 of the TAA 1953; j. Law Administration Practice Statement 2011/14. C. Reasons for decision In making my decision to issue the Security Bond Demand, I was guided by Law Administration Practice Statement 2011/14 and had particular regard to paragraphs 94 to 123. The written submission prepared by Amon Barton said that auditors working in the Indirect Taxes section of the ATO had estimated that the sale of 28 lots owned by Keris Pty Ltd as trustee for the 1748 Bradley Street Trust would cause it to incur a GST liability of $373,886. I believed that there was a significant risk that Keris Pty Ltd as trustee for the 1748 Bradley Street Trust would not pay that tax liability having had regard to the circumstances and the material set out in sections A and B above. Based on my belief that there was a significant risk that Keris Pty Ltd would fail to pay the tax liabilities of Keris Pty Ltd as trustee for the 1748 Bradley Street Trust, I concluded that it was appropriate that I should issue a Security Bond Demand to require the provision of $350,000 of security to mitigate the risk that the anticipated $373,000 of tax-related liabilities would not be paid. I recognised that if I were to acquire the security in the form of a cash deposit, it might constitute an unreasonable burden on the company s cash resources. Accordingly, I concluded that the appropriate form of security I should seek would be a mortgage over the company s real estate assets.

10 - 6 - I allowed a clear 34 days for compliance with the Security Bond Demand, knowing from my previous experience with securities that that would be ample time to provide the mortgage. 11 In the principal proceeding, the appellant sought to set the Notice aside under s 39B of the Judiciary Act 1903 (Cth) and also relied upon the provisions of the Administrative Decisions (Judicial Review) Act 1977 (Cth), on two grounds. Put simply, those grounds were these. 12 First, that upon a proper construction of s , the power conferred upon the Commissioner was not engaged. That was said to follow because the section is said to draw a distinction between, on the one hand, the subject matter of the exercise of the power ( an existing or future tax-related liability of yours ) and, on the other hand, the factors informing the exercise of the power (the Commissioner s reason to believe particular matters or whether the Commissioner reasonably believes other relevant matters). Having regard to that contended distinction, the appellant contended, before the Primary Judge, that until an assessment issues and notice of it is given to the appellant, or, alternatively, facts exist (said to be taxable facts ) at the time of the exercise of the power (that is, relevant events giving rise to a liability to tax) which trigger[s] a liability in the taxpayer to pay tax in the future albeit that the amount of that liability [is] not ascertainable (PJ, [11]), the power is not enlivened or engaged. On appeal, the appellant put this notion differently and said that, as to a future *tax-related liability, the power is not engaged until facts exist (said to be taxable facts) at the time of the exercise of the power which render the amount of the future tax-related liability objectively quantifiable and certain (even assuming the subsistence of the factors). On that footing, the power to require the giving of security was not enlivened (or engaged) and its exercise was simply beyond power: hence, the claim under s 39B of the Judiciary Act, although the basis for the construction of that limb of s (1) changed on appeal to that proffered before the Primary Judge. 13 Second, if, upon the construction attributed to the section by the Commissioner, the power to require the giving of the security was enlivened or engaged, s (1) is not a valid law of the Commonwealth because, as a question of characterisation, it falls outside the scope of a law with respect to taxation upon which it is said to rest, conferred upon the Commonwealth Parliament by s 51(ii) of the Constitution. As to the construction question, the appellant contended before the Primary Judge that its preferred construction was supported by the proper application of s 15A of the Acts Interpretation Act 1901 (Cth) because its preferred

11 - 7 - construction of s renders the section consistent with the Constitution as a law with respect to taxation. 14 Section 15A is in these terms: 15A Construction of Acts to be subject to Constitution Every Act shall be read and construed subject to the Constitution, and so as not to exceed the legislative power of the Commonwealth, to the intent that where any enactment thereof would, but for this section, have been construed as being in excess of that power, it shall nevertheless be a valid enactment to the extent to which it is not in excess of that power. 15 Although the Originating Application was amended a number of times, the final form of the relief sought and the grounds relied upon before the Primary Judge were those contained in the Second Further Amended Originating Application filed on 16 March The statutory provisions 16 Before turning to the reasoning of the Primary Judge, it is necessary to note some aspects of the statutory provisions at the date relevant to these proceedings, 25 September Sections , and of Schedule 1 fall within Subdivision 255-D of Division 255 of Part 4-15 of Schedule 1 to the Administration Act. Unless otherwise mentioned, all further references are to provisions contained within Schedule 1 to the Administration Act. 17 Part 4-15 addresses the topic of Collection and Recovery of Tax-Related Liabilities and Other Amounts. Division 255 addresses the topic of General rules about collection and recovery and Subdivision 255-D addresses the topic of Security Deposits. The relevant sections comprising Subdivision 255-D are in these terms: SECTION COMMISSIONER MAY REQUIRE SECURITY DEPOSIT (1) The Commissioner may require you to give security for the due payment of an existing or future *tax-related liability of yours if: (a) the Commissioner has reason to believe that: (i) (ii) you are establishing or *carrying on an *enterprise in Australia and you intend to carry on that enterprise for a limited time only; or (b) the Commissioner reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances.

12 - 8 - Note: A requirement to give security under this section is not a tax-related liability. As such, the collection and recovery provisions in this Part do not apply to it (2) The Commissioner may require you to give security: (a) (b) by way of a bond or deposit (including by way of payments in instalments); or by any other means that the Commissioner reasonably believes is appropriate (3) The Commissioner may require you to give security under this section: (a) (b) at any time the Commissioner reasonably believes is appropriate; and as often as the Commissioner reasonably believes is appropriate. Example: The Commissioner may require additional security if he or she reasonably believes that the original security requirement underestimated the amount of the likely tax-related liability. SECTION NOTICE OF REQUIREMENT TO GIVE SECURITY Commissioner must give notice of requirement to give security (1) If the Commissioner requires you to give security under section , he or she must give you written notice of the requirement. Content of notice (2) The notice must: (a) (b) (c) (d) (e) (f) state that you are required to give the security to the Commissioner; and explain why the Commissioner requires the security; and set out the amount of the security; and describe the means by which you are required to give the security under subsection (2); and specify the time by which you are required to give the security; and explain how you may have the Commissioner s decision to require you to give the security reviewed. SECTION OFFENCE You commit an offence if: (a) the Commissioner requires you to give security under section ; and (b) you fail to give that security as required. Penalty: 100 penalty units.

13 18 The term tax-related liability is defined by s of the Income Tax Assessment Act (Cth) (the 1997 Act ) to have the meaning given by s in Schedule 1 to the Administration Act. Section is in these terms: 255-1(1) A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a *taxation law (including a liability the amount of which is not yet due and payable). Note 1: See section for an index of tax-related liabilities. 19 As can be seen from the language of the section, s 255-1(1) contemplates that a tax-related liability includes a liability arising directly under a taxation law, the amount of which is not yet due and payable. The term taxation law is a defined term and by s of the 1997 Act the term means: (a) (b) (c) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or legislative instruments made under such an Act (including such a part of an Act); or the Tax Agent Services Act 2009 or regulations made under that Act. 20 The first limb of that definition includes the Income Tax Assessment Act 1936 (Cth) (the 1936 Act ), the 1997 Act, the GST Act and the Administration Act, among many other Acts. 21 Section (1) uses the phrase establishing or *carrying on an *enterprise. The phrase carrying on in connection with an enterprise includes doing anything in the course of commencement or termination of the enterprise (s of the 1997 Act) and the term enterprise has the meaning given to it by s 9-20 of the GST Act. 22 Section (1) sets out a table containing an index of each tax-related liability under the 1936 Act. The table identifies the key provision for the liability which specifies when the liability becomes due and payable. Section (2) sets out a table containing an index of each tax-related liability under Acts other than the 1936 Act, which also specifies when the liability becomes due and payable. For example, Item 5 contemplates an assessed net amount under ss 33-3, 33-5 and 35-5(2) of the GST Act and Item 10 contemplates an amount of assessed GST on importations under s of the GST Act. Fifteen items in the table at s (2) specify tax-related liabilities under the 1997 Act. The note to the section refers to Subdivision 255-B which contains s (1). It provides that the Commissioner may defer the time at which an amount of a *tax-related liability is, or would become, due

14 and payable by the taxpayer whether or not the liability has arisen. If the Commissioner exercises his or her discretion in that regard, that time is varied accordingly. 23 Subdivision 250-A contains a guide to Part 4-15 of Schedule 1 and s sets out some important concepts about tax-related liabilities. Section 250-5(1) provides that a tax-related liability may arise for an entity before it becomes due and payable by that entity. For example, under Part 2-5 of Schedule 1, an entity s liability to pay a withheld amount may arise before the amount is due and payable. For some tax-related liabilities, an assessment needs to be made before the amount of the relevant liability becomes due and payable: s 250-5(2). For example, under the 1997 Act, an amount of income tax needs to be assessed before it becomes due and payable: s 250-5(2), (the Example). Section 250-5(3) recognises that an amount of a tax-related liability may become payable by an entity (for example, when the amount has been assessed) before it is due and payable by that entity. 24 Section provides that the object of Part 4-15 is to ensure that unpaid amounts of *tax-related liabilities and other related amounts are collected or recovered in a timely manner. Section 15AA of the Interpretation Act is in these terms: 15AA Interpretation best achieving Act s purpose or object In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation. 25 Prima facie, in construing the text taken together with the definitions, s (1) seems to confer a discretion upon the Commissioner to require the addressee ( you ) to give security for the due payment of an existing tax-related liability of the addressee (that is, an existing pecuniary liability to the Commonwealth arising directly under a taxation law even though the amount of that liability is not yet due and payable to the Commissioner), or a future tax-related liability of the addressee (that is, a pecuniary liability to the Commonwealth arising directly, in the future, under a taxation law), if the Commissioner holds the relevant reason to believe described at s (1)(a)(i) and (ii) or, alternatively, the Commissioner reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances. 26 As to an existing tax-related liability, so understood, s (1), taking into account the definition in s 255-1(1), seems to contemplate a pecuniary liability the amount of which is known or quantified although not necessarily yet due and payable to the Commissioner.

15 A future tax-related liability seems to contemplate a pecuniary liability directly arising under a taxation law, in the future, where the amount of the pecuniary liability is unknown or unquantified at the time of the exercise of the discretionary power because the section, when speaking of a future *tax-related liability of yours is forward-looking to events giving rise to a tax-related liability which have not yet occurred. 28 That apparent forward-looking aspect of the section, by reference to the phrase future *tax-related liability of yours, to events (giving rise to a tax-related liability) which have not yet occurred, is consistent with the further discretionary power conferred upon the Commissioner by s (3) to require you to give security at any time the Commissioner reasonably believes is appropriate and as often as the Commissioner reasonably believes is appropriate, under the section. It also seems to be consistent with the notion contained in the example at s (3) that the Commissioner may require additional security if he or she reasonably believes that the original security required to be given underestimated the likely tax-related liability (that is, the earlier forward-looking estimate proved to be an underestimate of the likely future tax-related liability). As to the utility of examples in aiding statutory construction, see s 15AD of the Interpretation Act. 29 It should also be recalled that s (1) confers a discretionary power upon the Commissioner to require the addressee to give security for something, that is, the due payment of an existing or future tax-related liability of the addressee, rather than security for the existing or future tax-related liability itself. The section contemplates an ultimate obligation of due payment arising out of an existing or future tax-related liability and confers power upon the Commissioner to require the addressee to give security for that obligation of due payment. 30 The appellant contested such a construction of s before the Primary Judge and did so, on appeal. The appellant contends that its construction of the section to the effect that the discretion conferred on the Commissioner is not engaged (for the reasons identified at [12] of these reasons) is the preferred construction. The appellant also says that the Primary Judge, in construing the section, failed to have regard to the role s is said to play in aiding the proper construction of the section. It will, of course, be necessary to turn to the content of the appellant s contentions but before doing so, it is necessary to examine the observations of the Primary Judge now under challenge by the appellant.

16 The reasoning and conclusions of the Primary Judge The construction question 31 In order to put those observations in context, it is necessary to note (apart from the matters noted at [12] of these reasons) that the Commissioner contended before the Primary Judge that the Commissioner s power to issue the Notice was enlivened by or upon the existence of one of the circumstances set out at s (1)(a) or (1)(b) and contended that there was nothing in the nature of a statutory condition precedent to the engagement of the discretionary power in the terms contended for by the appellant. The Commissioner contended that the word future in the phrase future *tax-related liability of yours meant an expected or anticipated tax-related liability being one which is not presently existing but would be expected to arise in the future. 32 The Primary Judge accepted that the power conferred upon the Commissioner to require a taxpayer to give security is enlivened in one or other of the circumstances set out in s (1)(a) or (1)(b) (the considerations we have earlier described as the factors ): PJ, [24]. At [25], the Primary Judge accepted the Commissioner s contention as to the meaning of the word future in the phrase future *tax-related liability of yours. 33 The Primary Judge held that s (1)(a) contemplates that the power to issue a Notice to provide security is enlivened once the Commissioner has reason to believe the addressee is establishing or carrying on an enterprise in Australia and intends to carry on that enterprise for a limited time only: PJ, [26]. 34 At [27], the Primary Judge held that the juxtaposition of the words establishing and carrying on in s (1)(a) demonstrates that Parliament intended that the power to issue a notice be enlivened in circumstances arising (even) before the addressee has commenced carrying on the proposed enterprise and is no further advanced in that endeavour than engaging in the process of establishing the enterprise. At [27], the Primary Judge also said this: Because the concept of establishing an enterprise embraces preliminary activities that do not have the trading connotations associated with carrying on a business, it is apparent that the power to issue a notice may be enlivened well before the sale of one or more of the subdivided lots. 35 The Primary Judge held that the construction contended for by the appellant was inconsistent with the Parliament s use of the words establishing an enterprise in s (1)(a), which, the Primary Judge said, provide for the enlivening of the power to issue a notice in

17 circumstances where the Commissioner has reason to believe that the person or entity is doing no more than establishing an enterprise of the nominated nature : PJ, [28]. 36 At [29], the Primary Judge said this: the construction of the words future tax-related liability advanced by the Commissioner can be accommodated within the ambit of the words of s (1)(a), with the consequence that s can be read harmoniously. 37 Further, the Primary Judge held that when the terms of s are considered in context, the purpose of the section is to facilitate the recovery of tax where there is a risk arising from the nature of the business being undertaken or proposed to be undertaken, or by reason of other circumstances, that the liability to pay tax will not be met: PJ, [30]. The Primary Judge held that the construction he attributed to s (being that advanced by the Commissioner) is consistent with, and promotes, the statutory purpose of that provision and should, on that basis also, be preferred : PJ, [32]. 38 Thus, the Primary Judge said this at [33]: It follows that I do not accept the applicant s contention that the power in the Commissioner to issue the notice to provide security was not enlivened because the applicant had by the date of the notice not yet subdivided the land into the lots which it intended to sell as part of the applicant s business. 39 As to the words, for the due payment of an existing or future *tax-related liability of yours, the Primary Judge held that the words due payment in that phrase refer to the purpose of the taking of the security, namely, to secure the payment of the monies which are or may in the future become due and payable by way of tax. The constitutional question 40 As to the constitutional question, the Primary Judge identified three propositions contended for by the appellant. First, s does not provide for the imposition of a tax. Second, s is not to be regarded as a collection provision in any way analogous to the provisional tax regime upheld in Commissioner of Taxation v Clyne (1958) 100 CLR 246 ( Clyne ) or the wool sales advance payment scheme upheld in Moore v The Commonwealth (1951) 82 CLR 547 ( Moore ), and thus, s falls outside the scope of the taxation power in s 51(ii) of the Constitution. Third, the provision was said to be beyond power because it was arbitrary in its operation. 41 At [45], in reliance upon a discussion of the authorities at [42]-[44], the Primary Judge held that s is to be characterised as having the object of securing the payment of tax

18 and thus there is a sufficient connection between that characterisation and the constitutional text providing for the power to make laws with respect to taxation. Thus, s is a law with respect to taxation. The Primary Judge did not find it necessary to call in aid the incidental power in s 51(xxxix) of the Constitution. As to the provisional tax arrangements discussed in Clyne and the wool sales advance payment scheme discussed in Moore, the point of departure, for the Primary Judge, between those schemes and s is that those schemes were the subject of detailed provisions as to their operation whereas s is not in the nature of a detailed scheme but rather, is a general law institution for the giving of security for the performance of a future obligation, and: that circumstance in itself, imposes constraints upon the terms upon which the Commissioner may require the taxpayer to provide the security. The section empowers the Commissioner to require a person or entity to provide the security, but the section leaves a degree of flexibility as to the terms upon which the security is to be given. As is stated in the explanatory memorandum [discussed by the Primary Judge at [31] of the reasons], this flexibility is there to accommodate the nature of the security required and the nature of the liabilities in respect of which the security is sought. 42 The Primary Judge held that the circumstance that the statute does not set out, in detail, the nature and terms of the security which the Commissioner may require, does not undermine the characterisation of s as a law with respect to taxation for the purposes of s 51(ii) of the Constitution. The appeal 43 The appellant contests these conclusions. Keris did so by Notice of Appeal filed on 17 December However, that Notice of Appeal was the subject of an order for leave to amend. The Amended Notice of Appeal filed on 25 July 2016 takes an odd form in the sense that it recites a summary of the Grounds of Appeal and then sets out the grounds. Grounds of Appeal 44 The Grounds of Appeal are put this way: Summary 1A 1B The Respondent surmised that the Appellant would enter into various taxable transactions and estimated that its future liability to GST, if it did so, might be assessed by him in the amount of $373,886. He considered that amount to be a future *tax related liability within s in schedule 1 TAA ( the Provision ) and demanded that the Appellant provide a mortgage over all its real property to secure its due payment ( the Notice ). The learned trial judge erred in dismissing the application to set aside the

19 Notice. His Honour erred in his construction of the Provision, in particular that the amount of $373,886 was a future tax-related liability and that the power to require security could be enlivened before a taxable event had occurred (Ground 5), and erred in finding that on his construction the power was within s 51 of the Constitution (Ground 2A). Further and alternatively, on a proper construction of the Provision the Notice in requiring a mortgage over specific property of the Appellant was otherwise prohibited by the Constitution (Ground 4). Constitutional invalidity 2A His Honour should have found the Commissioner s construction of future *tax related liability, the Provision which allows him to guess at a taxpayer s future intentions and hypothetical transactions, is beyond the legislative power of the Commonwealth. His Honour should have found that this construction, which gives rise to a liability to provide a certain amount of cash or other property to the Commissioner to pay or secure an arbitrary and judicially incontestable amount, is prohibited by s 51(xxxi) [the just terms provision] of the Constitution rather than being properly incidental to the taxing power under s 51(ii) of the Constitution. 4 Further and in the alternative to Ground 2A, his Honour erred in failing to find that the Notice demanding the granting of a proprietary interest being a mortgage over all land owned by the Appellant was an unconstitutional exercise of power because the demand for the grant of mortgage over specific property with Criminal Consequences is the acquisition of property except on just terms and properly referable to the power in s 51(xxxi) of the Constitution. 5 The primary judge in concluding at [50] of the reasons below (PJ) that the Notice was not in excess of the power granted by the Provision to the Respondent[,] erred having regard to the correct statutory interpretation of the Provision: a. His Honour erred in rejecting at PJ [23] the appellant s argument as to its proper construction (set out at PJ [8] [19]) and accepting at PJ [24] and [25] the respondent[ s] contentions as to its proper construction (set out at PJ [20] and [21]). His Honour erred in finding that a future tax related liability was a prospective tax-related liability (PJ [25]) or [money] which may in the future become due and payable by way of tax (at PJ [36]). His Honour erred in finding at PJ [27], [28] and [33] that the power to require security for a future tax related liability was enlivened before a taxable event had occurred. His Honour should have accepted the appellant s submission (PJ [19]) that a taxable event was necessary to enliven the power. His Honour erred in eliding (PJ [25]) with the word future with expected or anticipated. The error is that the word used by Parliament, in juxtaposition with existing, does not, in contrast to those other words necessarily import a subjective notion of evaluation, being that of the Commissioner. His Honour should have found the expression to mean an amount of [money] which will in the future become due and payable by way of tax, that the authorities referred to [34] assisted with the construction, and that the amount of $373,886 was not a future tax related liability[ ]. His Honour should have found that the Provision did not allow the Commissioner to surmise as to the intentions of the taxpayer and

20 others or to predict their actions to estimate what may in the future become due and payable by way of tax. b. His Honour erred in his consideration of the words establishing or carrying on an enterprise in Australia as used in s (1)(a)(i). c. His Honour failed to have regard to the juxtaposition of existing with future and the definition of *tax-related liability insofar as that definition interacted with the assessment process for GST. d. His Honour erred in his application of s.15a Acts Interpretation Act 1901, having regard to the matters set out at Grounds 2A and 4 above. e. His Honour should have found that the expression future *tax-related liability allowed the Commissioner only to determine what *tax-related liability would arise as at the time of his determination, being the tax-related liability that is created if the Commissioner assesses the taxpayer to GST at that time. That is, his Honour should have found that the word future referred to the assessment process that the Commissioner must undertake to create an existing *tax-related liability for GST and that the expression is concerned with unassessed taxable facts or events that have happened, not expected or anticipated taxable facts or events which had not happened and might never happen. [original emphasis] 45 The original Notice of Appeal contained five grounds. When the Notice of Appeal was amended, Grounds 1A and 1B were introduced. Ground 1 was amended to bring about Ground 2A. Grounds 2, 3 and 4 were essentially deleted to bring into existence the new Ground 4 as framed above. That is why no Grounds 2 and 3 are recited in the Grounds of Appeal above. Ground 5 was substantially amended. 46 As to the amended grounds, Grounds 1A is in the nature of a contextual statement. Ground 1B asserts, in short-form, Grounds 5, 2A and 4 (in that order). Ground 2A asserts that if the Commissioner s construction of s is correct, then s (1) is not a law with respect to taxation and nor (as a new matter) is it a law properly incidental to the s 51(ii) power to make laws with respect to taxation. Ground 2A also collects up Ground 4 which asserts that the demand for a mortgage over all of the appellant s land is an acquisition of property (proprietary interest) on other than just terms for the purposes of s 51(xxxi) of the Constitution. As to Ground 5, the appellant challenges a range of findings of the Primary Judge as to the construction of s Apart from challenging the contentions of the appellant, the Commissioner contends that the Primary Judge did not make the findings attributed to him.

21 The essential contentions of the appellant 47 The appellant says that in issuing the Notice, the Commissioner speculated, subjectively, that the appellant would, as a result of its project for the subdivision of the Bradley Street site into 28 lots (with new titles said to issue on 30 September 2014), sell those lots at prices between $252,000 and $350,000 each, causing Keris to incur, according to the ATO auditors, GST liabilities of approximately $373,886 after taking into account development costs. The appellant describes this formulation as an exercise by the Commissioner of looking into the taxpayer s mind so as to speculate about its business affairs and predict what its future tax might be. The appellant says that the Commissioner s subjective speculation about future events is not a future *tax-related liability of yours within s because it does not represent an application of the tax laws to taxable facts that had occurred but had not been assessed : appellant s submissions filed 7 July 2016 ( AS 7/7 ), paras 1-3, 5 and The appellant says that the phrase future *tax-related liability does not enable the Commissioner to stand in the shoes of the taxpayer and guess about business decisions the taxpayer might choose to make in the future. Nor does it enable the Commissioner to make predictions as to future tax liabilities based upon a hypothesis as to sales of lots (which might or might not be sold), at particular prices. That becomes especially so, it is said, when the tax-related liability concerns GST which would be influenced by whether the taxpayer elects to apply the margin scheme, or by the identity of the purchaser. 49 Rather, the appellant contends that s (1) in using the phrase future *tax-related liability selects a jurisdictional fact upon which the power to require security operates, that is, there must be a specifically ascertainable correct amount determined by applying the tax laws to taxable facts which have occurred but have not yet been the subject of an assessment: AS 7/7, para 7. Thus, the Court should find that a future *tax-related liability means the *tax-related liability that would be created if taxable facts were assessed at the time of the issue of the demand for a security deposit : AS 7/7, para Although an existing *tax-related liability to income tax or GST is said to be one that arises where the Commissioner has assessed the taxable facts and notified the taxpayer of the assessment, a future liability is said to be simply a liability that will come into existence and, so, a future *tax-related liability at a particular point in time [the time of the Commissioner s issue of the requirement to give security] is that debt which would come into

22 existence if the taxable facts were assessed and the tax liability notified to the taxpayer [emphasis added]: AS 7/7, paras 20 and The appellant says that because the amount of $373,886 had no relevant foundation in taxable facts at the time of the exercise of the power, no future *tax-related liability subsisted so as to support the exercise of the power and the giving of the Notice: AS 7/7, para 9. Rather, the Commissioner must objectively consider the question of what are the taxable facts and determine what *tax-related liability would arise if he made an assessment, or an amended assessment, of those taxable facts. Only then, it is said, can the Commissioner consider the risk to the Revenue in collecting that fixed amount and whether it is appropriate to require the giving of security: AS 7/7, para This construction of s as one operating or conditioned upon a jurisdictional fact (that is, as to a future *tax-related liability of yours, a specifically ascertainable correct amount based upon taxable facts which have occurred at the time of the exercise of the power if those taxable facts were then assessed and an assessment notified to the taxpayer), is said to be informed by the circumstance that criminal sanctions attach to non-compliance with the Commissioner s requirement to give security: s The appellant says that it is unlikely that the Parliament sought to attach criminal sanctions to non-compliance with a requirement to give security for the due payment of a future *tax-related liability in circumstances where that phrase would comprehend a circumstance where there is no objectively ascertainable specifically correct amount, calculated as the measure of the debt, by reference to taxable facts which have occurred at the time of the exercise of the power to require the giving of security: AS 7/7, para Thus, put simply, the appellant says that the exercise of the discretionary power to require security is constrained by a proper understanding of the limits of the subject matter of the power, that is, either an existing *tax-related liability or a future *tax-related liability, in the way the appellant describes, giving rise to an obligation of due payment. 54 The appellant also says that the Commissioner s view of the likely amount of the taxpayer s GST liability is simply arbitrary and thus no security can reasonably be demanded of the taxpayer: AS 7/7, para As to the constitutional questions, the appellant says, first, that the quantum of the security is selected arbitrarily with no regard to actual taxable events having occurred (as described