Can you rely on a letter from the ATO?
The recent decision of Pintarich v Deputy Commissioner of Taxation  FCAFC 79 highlights the possible risk of taking correspondence from the Australian Taxation Office at face value.
The Key Facts
- The taxpayer did not file timely tax returns for the 2010 to 2013 income years.
- The taxpayer was issued notices of assessment in respect of those years. The taxpayer owed over $1.15 million, comprised of approximately $821,000 in primary tax and $335,000 of general interest charge (GIC).
- The taxpayer’s accountant wrote to the ATO seeking a remission of the GIC under section 8AAG of the Taxation Administration Act 1953 (Cth).
- The taxpayer, his accountant and an authorised officer of the ATO (Officer) corresponded with each other in relation to the tax liabilities.
- The taxpayer claimed that during one conversation with the Officer, the Officer stated:
if you make sure you can pay it by February 2015 then it will all be over and done with
- The Officer kept file notes of his conversations with the taxpayer. The file notes recorded that the Officer informed the taxpayer that no decision had been made in relation to the remission of the GIC.
- The ATO sent a letter to the taxpayer (Letter) which stated:
Thank you for your recent promise to pay your outstanding account. We agree to accept a lump sum payment of $839,115.43 on or by 30 January 2015.
This payout figure is inclusive of an estimated general interest charge (GIC) amount calculated to 30 January 2015. Amounts of GIC are tax deductible in the year in which they are incurred.
- The Officer had caused the Letter to be issued but could not explain how the underlined words had been included. He entered information into a “template bulk issue letter”, and this process had generated the Letter. He had not read the Letter before it was sent. He claimed that no decision had been made to remit the GIC at the time the Letter was issued.
- On the basis of the Letter, the taxpayer paid $839,115.43 to the ATO on 30 January 2015.
- Clarification was sought from the ATO as to the status of the matter. The Officer responded that the ATO was still reviewing the application for remission of the GIC.
- The Deputy Commissioner of Taxation wrote to the taxpayer advising that the application for full remission of GIC had been refused. Only a partial remission was granted due to the delay in responding to the taxpayer’s application.
- The Deputy Commissioner advised the taxpayer that the Letter had been issued in error and did not include the full amount of GIC which had accrued up to the date of the letter.
- A second application for remission of GIC was submitted by the taxpayer but again only a partial remission was granted.
- The taxpayer claimed that the Deputy Commissioner had:
(a) exercised its discretion to remit the GIC by issuing the Letter to the taxpayer; and
(b) could not revoke, vary or revisit its decision under the Letter.
The Primary Judge
- The Primary Judge found that:
(a) the Officer had not made any decision whether to waive the GIC prior to issuing the Letter. To make a decision requires a process of deliberation, assessment, and/or analysis on the part of the Officer with a view to deciding whether to remit the GIC;
(b) the Letter was not and did not purport to be the communication of a decision relating to the GIC waiver application; and
(c) as no decision had been made by the Letter, the subsequent decision by the Deputy Commissioner to not remit the GIC in full remained on foot.
Court of Appeal
- On appeal, the taxpayer argued that the Letter manifested a decision by the Deputy Commissioner to remit the GIC, and the Primary Judge was incorrect to conclude that the subjective evidence of a decision is determinative in concluding no decision to remit the GIC had been made.
- In a two to one majority decision, the Court of Appeal found that:
(a) the natural reading of the Letter is that the Deputy Commissioner agreed to accept a lump sum payment by 30 January 2015 in full discharge of the taxpayer’s primary tax and GIC liabilities;
(b) however, this does not answer the question as to whether the Deputy Commissioner had made such a decision. There must have been a mental process of reaching a conclusion and an objective manifestation of that conclusion. On the facts presented, there was no mental process by the Deputy Commissioner of reaching a conclusion; and
(c) as no decision was made, the Deputy Commissioner was not bound to what was conveyed by the Letter.
The Court of Appeal noted the perceived unfairness in this case. The taxpayer relied on the Letter to arrange financing of his final tax bill, only for the ATO to backtrack on the position objectively set out in the Letter.
The Court of Appeal also noted that this type of case can produce administrative uncertainty, in that taxpayers and others dealing with government may be hesitant to rely on communications with government agencies and their officers.
The outcome of this case is interesting, particularly in light of recent concerns with the ATO issuing “robo-debt” and garnishee notices.