ADMINISTRATIVEREVIEW COUNCIL

REPORT TO THEATTORNEY-GENERAL

REVIEW OF TAXATION DECISIONS

BY BOARDS OF REVIEWReport No. 17

Australian Government Publishing ServiceCanberra 1983

© Commonwealth of Australia 1983

ISBN 0 644 02716 9

Printed by Canberra Reprographics Pty Limited, 119 Wollongong St, Fyshwick, A.C.T. 2609

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ADMINISTRATIVE REVIEW COUNCIL

G.P.O. Box 9955Canberra, A.C.T. 2601

AMP BuildingHobart Place

Canberra CityTel. (062) 47 5100

6 June 1983

Dear Attorney-General,

I have pleasure in submitting to you herewith a Report by the Administrative Review Council on Review of Taxation Decisions by Boards of Review.

The Council recommends that the Report be published.

Yours sincerely,

E. J. L. TuckerChairman

Senator the Hon. Gareth EvansAttorney-GeneralParliament HouseCanberra, A.C.T. 2600

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CONTENTSParagraph Page

LIST OF RECOMMENDATIONS 1INTRODUCTION 1 2Responses to the Discussion Paper 7 3Outline of the Report 8 3

PART I: THE TAXATION REVIEW SYSTEM 14 4Social Function and Policy of Taxation Legislation 14 4The Objection and Appeal Process 19 4

Assessment and Notice of Assessment 20 6Objections 21 7Consideration of Objections and Notice of Disallowance22 7Request for Review 23 7Reconsideration of Case 26 7Reference to a Board or Court 28 8Appeal from a Board or Court 32 8

The Boards of Review 34 8Composition 34 8Jurisdiction and Function 36 9Powers 41 9Procedures 43 10

Alternative Avenues for Review of Commissioners Decisions 46 10Commonwealth Ombudsman 48 11

PART II: THE DEVELOPMENT OF ADMINISTRATIVE REVIEWIN AUSTRALIA 51 12Recognition of the Administrative Review Function 51 12

Kerr and Bland Reports 55 13Basic Elements of External Review on the Merits 63 15

The Administrative Appeals Tribunal 71 16Composition 73 17Powers 76 17Procedures 79 18

PART III: ADMINISTRATIVE REVIEW IN TAXATIONMATTERS - THE BOARDS OF REVIEW 86 20Impartiality 88 20Membership 98 22Constitution 103 23Expedition of Cases 115 26Nature and Scope of Review 125 27

Discretionary Power 129 28Grounds of Objection 132 28Prehearing Procedures 134 29

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PART IV: CONCLUSIONS 139 31Need for Reform 139 31Options 140 31

Appeal to the AAT 141 31Boards as Quasi-internal Review Bodies 142 31A Tax Court? 143 32Transfer to the AAT 145 32

PART V: RECOMMENDATIONS 163 37Jurisdiction to Review Taxation Decisions 163 37Commencement of Jurisdiction in the AAT 165 37Statements of Reasons under Sections 28 and 37 169 38Public Hearings 172 39Time Limits and Amendment of Grounds of Objection 175 40Stay of Decisions 180 41

APPENDIX A: Submissions on Discussion Paper 42

APPENDIX B: Income Tax Assessments,Objections and Reviews, 1976-82 43

APPENDIX C: Jurisdiction of Boards of Review 45

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LIST OF RECOMMENDATIONSJurisdiction to Review Taxation Decisions1. The existing jurisdiction of the Boards of Review to review decisions made under taxation legislation should be vested in the Administrative Appeals Tribunal.

Access to the AAT2. Existing legislation permitting a taxpayer to request the Commissioner to refer his objection to a Board of Review should be amended to provide that the taxpayer may request the Commissioner to refer his objection to the Administrative Appeals Tribunal.

Statements of Reasons Under Sections 28 and 373. The legislation conferring jurisdiction on the Administrative Appeals Tribunal should provide that section 28 of the Administrative Appeals Tribunal Act 1975 does not apply in relation to review by the Administrative Appeals Tribunal of taxation decisions formerly reviewable by Boards of Review; and should amend the operation of section 37 of that Act in relation to those taxation decisions such that the Commissioner of Taxation shall lodge with the Tribunal the statement and documents referred to in that section at the time the case is referred to the Tribunal.

Time Limits and Amendment of Grounds of Objection4. Sections 185 and 187 of the Income Tax Assessment Act 1936 should be amended to enable the Commissioner of Taxation in his discretion to grant an extension of time for lodgement of objections and requests for reference or appeal on the grounds that the taxpayer has a reasonable excuse for his failure to lodge an objection or request a reference within time and would suffer undue hardship if time were not extended; and to provide that a refusal by the Commissioner to grant an extension of time should be reviewable by the Administrative Appeals Tribunal.

5. Paragraph 190(a) of the Income Tax Assessment Act 1936 should be amended to provide that upon a reference to the Administrative Appeals Tribunal, the taxpayer shall be limited to the grounds stated in his objection unless the Tribunal otherwise orders.

Stay of Decisions6. Section 41 of the Administrative Appeals Tribunal Act 1975 should not apply to taxation decisions formerly reviewable by Boards of Review which are reviewable by the Administrative Appeals Tribunal.

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INTRODUCTION1. In its Fourth Annual Report 1980 (at para. 198) the Council outlined a major project it had undertaken involving the consideration of all Commonwealth administrative review tribunals with a view to reporting on: those whose jurisdictions should be transferred to the Administrative Appeals

Tribunal ('the AAT'); the appropriate AAT procedures for handling those jurisdictions; and the appropriate procedures of those tribunals not absorbed by the AAT,

including the applicability of a code of procedures and further rights of review by the AAT.

The Boards of Review established under Part V of the Income Tax Assessment Act 1936 have been considered as part of that project. When Council began examining the operation of the Boards it was aware that they were also being considered by both the Taxation Institute of Australia and the Taxation Committee of the Law Council of Australia. Following representations by the Victorian Bar Council this Council decided to instigate a separate project dealing with review of income tax objections. The terms of reference adopted by the Council for this project are:To examine the process of review of income tax objections and to report on:(a) the appropriate forum for administrative review;(b) the appropriate procedures for review; and(c) any other related matter.

2. These terms of reference centre on the administrative review aspects of the income tax system. Thus, the focus of this Report concerns the Boards of Review. The largest area of the Boards' jurisdiction involves the hearing of objections to income tax assessments under the Income Tax Assessment Act 1936. The Boards also have jurisdiction under several Acts unrelated to income tax, including Acts dealing with sales tax, payroll tax, wool tax, and taxes on certain transactions in the Australian Capital Territory. Although those jurisdictions are not concerned with income tax and are accordingly outside the project's terms of reference, Council has found it convenient to deal with them in this Report and its recommendations are intended to encompass all the jurisdictions of the Boards. The Report concentrates, nevertheless, on the income tax jurisdiction of the Boards, not only because it gives rise to the major part of the Boards' workload but because the income tax review procedures are generally representative of the procedures operating in the other areas.

3. As it has concentrated on administrative review, the Council has not examined nor made any recommendations in relation to the operation of the income tax jurisdiction of the Supreme Courts of the States and Territories which are an alternative review forum in relation to income tax decisions. It has not, for example, considered whether this line of appeal should be abolished or given to the Federal Court.

4. For the same reason, the Council has not conducted a detailed examination of the administrative decision-making processes of the Australian Taxation Office ('the ATO') except as has been found necessary for the proper consideration of the work of the Boards.

5. In producing this Report, therefore, the Council has acted pursuant to its statutory functions set out in paragraphs 51(1) (d), (e) and (f) of the

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Administrative Appeals Tribunal Act 1975 ('the AAT Act'). In keeping with those functions, the Council has examined the Boards of Review both to assess the adequacy of their present constitution and procedures and to determine the desirability of vesting the jurisdiction presently exercised by the Boards in the Administrative Appeals Tribunal.

6. Throughout its deliberations, the Council has been particularly conscious of the importance of the contribution of the taxation system towards the proper functioning of government and the well being of the community, and has sought to ensure that its recommendations are consistent with those interests.

Responses to the Discussion Paper7. In order to have available to it the views of those persons and organisations with knowledge of the process of review of income tax objections, the Council asked its Secretariat to prepare a Discussion Paper for circulation among representative bodies of the legal and accounting professions, other organisations with a specific interest in taxation matters, interested individuals and the ATO. The Discussion Paper brought together information obtained by the Secretariat and views expressed to it in preliminary discussions held with officers of the ATO, Chairmen and members of the Boards and representatives of organisations, and drew tentative conclusions from that material. It was circulated in August 1982 with an invitation to comment. Twenty-two submissions have been received and considered by the Council. (See Appendix A for a list of persons and organisations who made submissions.)

Outline of the Report8. The remainder of this Report is divided as follows.

9. Part I discusses the social function of taxation and the policy of the taxation legislation with reference to the relevant community and individual interests. The processes of assessment, objection and initiation of review and the role of the ATO are then described. A description of the composition, jurisdiction, functions, powers and procedures of the Boards of Review follows.

10. Part II considers the role of the Boards and specialist review tribunals in the context of the Australian administrative review system and traces the developments leading to the establishment of the AAT as a general administrative review tribunal. The important features of administrative review are discussed.

11. Part III assesses the Boards of Review in the light of the submissions received by the Council and desirable standards of administrative review.

12. Part IV discusses the significance of the material contained in Part III and details the conclusions which have led the Council to recommend that the jurisdiction of the Boards of Review should be transferred to the AAT.

13. Part V sets out the Council's recommendations for the vesting of that jurisdiction in the AAT.

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PART I: THE TAXATION REVIEW SYSTEM

Social Function and Policy of Taxation Legislation14. The increasing reliance of citizens upon the national government to provide a wide and increasing range of services has created an imperative need for the government to engage actively in revenue raising. With the overall taxation receipts of the national government for the last financial year (1981-82) comprising 27.5 % of the gross domestic product (Budget Statements, 1982-83) the provisions of the taxation law have profound economic, political and social significance. From the viewpoint of the executive government, the fiscal component of its budgetary policy is now of signal importance not only in revenue raising but also in its endeavour to control the economy. From the viewpoint of the taxpaying citizen, the imperative needs of the government for the raising of revenue are now met in the context of the citizen's concern about legitimacy, equity and redress, of grievances.

15. It is not surprising, therefore, to find in the taxation legislation a reflection of the balanced mutuality of rights, duties and interests between the community and its constituent individuals which is a characteristic of our Western democratic tradition. There are obligations placed upon the individual, for example, to submit a tax return, to fully and truly disclose his affairs to the Commissioner, and to pay tax when it falls due. The community interest in the performance of these obligations finds direct expression in the various provisions for the payment of tax and the stipulation that the taxpayer bears the onus of showing that an assessment is excessive.

16. There is also a community interest in the fair and proper administration of taxation law. In Australia, partly as a result of the operation of section 55 of The Constitution (which requires that Bills dealing with the imposition of taxation deal only with that matter), Commonwealth taxation law is highly fragmented. This quality, mixed with the growing complexity of the subject of taxation and the compulsive quest of governments to meet their revenue needs, highlights the need to give legislative expression to the rights and liberties of taxpayers. Their interest is commonly reflected in the right given to them to seek review of decisions made under the legislation.

17. It is Council's view that the balance of interests achieved in the policies of taxation legislation must be kept in mind when reforms are being considered. So as not to give undue weight to one or other interest, it is necessary to keep distinct the separate strands of policy reflecting the various interests and to ask, in respect of a particular component of the taxation system, what interest it is intended to serve or promote. It is important that the community interest in the performance of the individual's social obligations is not seen as overshadowing the community interest which is reflected in the individual's right to review, or as impliedly cutting down its operation. Equally, it is important that that right of review not be so enlarged as to undermine the social function of taxation.

18. The Council has sought to keep these considerations in mind in approaching its task.

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The Objection and Appeal Process19. This section sets out the objection and appeal process and describes the nature and function of the Boards of Review. The relevant statutory provisions are contained in Part V of the Income Tax Assessment Act 1936 and Part V of the Income Tax Regulations. The basic stages of the process are set out in Figure 1 (see p.5). A summary of the most recent statistics for each of those stages is set out below in Table 1 (see p.6). That summary highlights the large number of returns and assessments made each year and, by comparison, the relatively small number of cases which, after the processes of objection and request for reference have run their course, actually reach the Boards of Review. Detailed statistics for the years since 1976 are contained in Appendix B, and are discussed below at paragraphs 115-24.

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Assessment and Notice of Assessment20. Officers in the ATO, acting for the Commissioner of Taxation, ascertain a taxpayer's taxable income and the tax payable on the basis of information that is contained in the taxpayer's return or is otherwise available. A notice of assessment is then issued to the taxpayer setting out the taxable income and the tax payable (s.174). Where these differ from amounts claimed by the taxpayer, an adjustment sheet indicates the points of disparity by means of symbols keyed to a standard list of adjustments.

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OBJECTIONS21. If the taxpayer is dissatisfied with the assessment, he must lodge an objection within sixty days after the notice has been served on him. No extension of this period is possible. He must put the objection in writing, and state fully and in detail the grounds on which he relies (s.185). This last requirement is crucial because, on review, the taxpayer will be limited to the grounds stated in his objection (para. 190 (a)).

CONSIDERATION OF OBJECTIONS AND NOTICE OF DISALLOWANCE22. The taxpayer's objection must be considered (s.186) but there is no specified period within which this must be done. In some cases additional information may be sought from the taxpayer at this stage. Consideration of objections is undertaken by Objection Review Units specially formed for the purpose and which consist of the more experienced assessors. The objection may be disallowed, or allowed either in whole or in part (s.186). In some cases, the taxpayer may withdraw the objection, or a figure may be agreed on and the matter settled. A notice in writing of the decision to allow or disallow is to be served on the taxpayer (s.186).

REQUEST FOR REVIEW23. A request for review of the decision to disallow an objection must be made within sixty days of service of the notice (sub-s.187(1)). A refundable fee of two dollars must be paid (s.188).

24. The taxpayer may request that the matter be referred to a Supreme Court or to a Board of Review. The choice of forum may be influenced by a number of considerations: the Courts cannot exercise a discretion under the Act, whereas Boards are empowered to review some discretions; a party bears only his own costs before the Boards as costs cannot be awarded against the unsuccessful party; Board hearings are held in camera unless the taxpayer requests otherwise; a Court may be a more appropriate forum for questions of law; and Courts may require particulars of the Commissioner's case to be disclosed.

25. There is no requirement that the matter be referred immediately, but if it is not referred to a Board or Court as appropriate within sixty days, the taxpayer may request it to be referred within a further sixty days (s.189). Such requests are not made frequently.

RECONSIDERATION OF CASE26. It is unlikely that a matter will be sent for review immediately. Rather, further investigation and correspondence with the taxpayer or his representative are often undertaken. Appendix B indicates that a large number of matters, between 75 and 80%, are usually allowed or settled following reconsideration. A significant number of cases, between 20 and 25%, are withdrawn by taxpayers.

27. Assessment is carried out by Third Division officers, ranging from Classes 2through 7. The higher of these officers handle more complicated categories of tax return, such as business, partnership, trust and company returns. The work of each assessor is checked by another officer, two classes above the assessor. Each assessor works within a group supervised by a checking officer.

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Objections are considered again at the same levels, but within special Objection Review Units set up for the purpose and comprising the more experienced assessors. Officers Class 7 and above are involved in this process as checkers of the more complex assessments and, in a few special cases, in actually making the assessment. Cases referred to the Appeals Branch at Head Office prior to reference to a Board or Court are handled by officers of Class 7 and above.

REFERENCE TO A BOARD OR COURT28. Matters which have not been allowed, settled or withdrawn are referred to a Board or Court. Copies of relevant documents are forwarded to the review body together with a statement of reasons for disallowance of the objection (reg. 35). The statement usually contains only the ultimate conclusions. A copy is sent to the taxpayer. Matters are forwarded to particular Boards on the basis of the geographical regions in which they have arisen. The composition, jurisdiction, function, powers and procedures of the Boards are considered in detail at paragraphs 34-45 below.

29. Each of the State Supreme Courts is vested with original jurisdiction to hear income tax appeals. A special territorial nexus is required to vest jurisdiction in the Supreme Courts of the AC T. and Northern Territory (s.184B). The taxpayer may specify any Supreme Court with jurisdiction to hear the matter. Once referred, the matter follows the ordinary course of litigation procedure, including the ordering of particulars and of discovery, and the award of costs.

30. The Supreme Court is constituted by a single Judge (s.197) who may make such order as he thinks fit, confirming, reducing, increasing or varying the assessment (sub-s.199(1)). A case may be stated by that Court for consideration by the Full Court of the Federal Court (sub-s.198(1)).

31. At a hearing before the Court or a Board, the taxpayer bears the onus of proving that the assessment was excessive (para. 190(b)).

APPEAL FROM A BOARD OR COURT32. The Commissioner of Taxation or the taxpayer may appeal as of right to a Supreme Court sitting as a single Judge from any decision of a Board that involves a question of law (sub-s.196(1)). Such appeals are heard de novo by the Court. Appeals from the decision of the Supreme Court may be made by leave to the Federal Court and by special leave to the High Court.

33. Where a matter is heard by a Supreme Court at first instance, an appeal as of right lies to the Federal Court. Further appeal is by special leave to the High Court.

The Boards of Review

COMPOSITION34. Until 1947 only one Board, based in Sydney, operated. Two additional Boards, based in Melbourne and Brisbane, were established in 1947 and 1950 respectively.

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35. Each Board consists of a Chairman and two other members (sub-s.178 (2)). Provision is made for the transfer of entitlements to and from the Public Service (s.179), the appointment of acting Chairmen and deputy members (s.180), the remuneration (s.182), removal or suspension of members (s.183); and the vacation of the office of a member (s.184). A Board member is given certain legal immunity for acts associated with his duties (s.181). Board members are appointed by the Governor-General (sub-s.178 (2)) on the recommendation of Cabinet. Appointment is for seven years and reappointment is possible (sub-s.178(4)). Although there is no legal requirement to do so, the Chairmen are invariably chosen from the senior officers of the ATO, and the members one each from the accounting and legal professions.

JURISDICTION AND FUNCTION36. The function of the Boards is to hear and determine cases referred to them by the ATO at the request of taxpayers.

37. As indicated above at paragraph 2, the Boards of Review conduct reviews of decisions made under several Acts. (For a full list of their jurisdiction, see Appendix C.) The great majority of their reviews concern the Income Tax Assessment Act 1936, and the assessment of income tax. A Board's function is described as the review of such of the Commissioners decisions as are referred to it under the Act (s.192). Most of the decisions referable are those to disallow or partly allow objections under section 186. Apart from income tax, the Boards also have jurisdiction under that Act to review the refusal to grant certificates of tax exemption in respect of interest arising on certain overseas loans, to review determinations as to tax payable following the redemption of stock for drought bond purposes and to review determinations relating to credits for overseas tax paid on film income.

38. The Boards also have jurisdiction to review decisions relating to taxes on the sale value of goods under the Sales Tax Assessment Act No.1 1930, and on wages paid in the Australian Capital Territory under the Pay-roll Tax (Territories) Assessment Act 1971. Further jurisdiction exists under the Australian Capital Territory Taxation (Administration) Act 1969 in respect of decisions relating to taxes imposed on a variety of transactions in the A.C.T. including insurance business, the drawing of cheques, and the transfer of leasehold land in the Territory. Decisions relating to taxes imposed on the sale of wool are reviewable under the Wool Tax (Administration) Act 1964. The jurisdiction of the Boards under the Estate Duty Assessment Act 1914, the Export Incentive Grants Act 1971, the Gift Duty Assessment Act 1941 and the Pay-roll Tax Assessment Act 1941 is, practically speaking, defunct.

39. The jurisdictions, other than in respect of income tax, give rise to only a handful of cases for the Boards each year. In the year ended 30 June 1981, for example, five gift duty cases were heard. In the following year, only four cases, all under sales tax legislation, came before the Boards. The procedure by which such matters reach the Boards is generally similar in each case to the procedure for income tax cases outlined in detail below. The differences are not sufficiently significant to warrant separate attention here.

40. A very minor part of the jurisdiction of the Boards relates to the determination of primary decisions or to the making of reports submitted to a primary decision maker. The jurisdictions concerned are denoted by an asterisk in Appendix C. At present, only the jurisdiction of a member of a Board to hear

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applications for release from liability to pay tax on the grounds of hardship under section 265 of the Income Tax Assessment Act 1936 is currently active. As this Report is concerned only with the review jurisdiction of the Boards, the Council does not express any opinion on the provisions concerned.

POWERS41. With one minor exception (see s.226) the Boards have all the powers of the Commissioner in making assessments, determinations and decisions under the Act. The decision of the Board then stands as the decision of the Commissioner (s.193).

42. A Board has no power to order the Commissioner to supply particulars or give discovery but may make a request to the Commissioner to provide additional information where it would assist the Board: Sutton v. Commissioner of Taxation (1959) 100 CLR 518. It has no power to award costs but may require the taxpayer to pay the expenses of a witness required to attend a hearing at the request of the taxpayer (sub-regs 39(3), (4)).

PROCEDURES43. The Boards, although based in particular cities, travel to other capital cities and regional centres. Unless the Chairman otherwise directs, references are heard in the order in which they are received (sub-reg. 37(1)). The Chairman's discretion may be used to group cases for hearing in one region and to accommodate the unavailability of the taxpayer or his representative. A Board sits at such times and places as are determined by its Chairman (sub-reg. 37(2)). Thus each Board makes its own business arrangements. A quorum is constituted by two members (para. 194(a)). Reviews are to be conducted as the Chairman directs from time to time (sub-reg. 38(1)), but all reviews are to be held in camera unless the taxpayer otherwise requires (sub-reg. 38(2)). Such requests are not frequently made. There is no express direction as to the way in which a Board is to inform itself, but all oral evidence is to be taken on oath or affirmation (para. 39(1)(a)). Certain documentary evidence may be accepted without formal proof (sub-reg. 39(1)). The Chairman has power to require persons to attend and give evidence or produce documents (sub-reg. 39(2)). Both the Commissioner and the taxpayer may be represented (sub-reg. 38 (4)).

44. In practice, hearings proceed along lines similar to court hearings. The taxpayer presents his case first. Cross-examination and re-examination are permitted. Board members frequently ask questions. The Commissioners case is then given and his witnesses subjected to cross-examination and re-examination where appropriate. The taxpayer or his representative and the Commissioner or his representative then address the Board, with a right of reply in the taxpayer if required. Rules of evidence are not binding, but are generally followed.

45. The majority decision prevails, with the Chairman having a deliberative, but not a casting, vote (s.194). The Board is obliged to give its decision in writing and, if so requested at the hearing, to state in writing its findings of fact and its reasons in law for the decision (s.195). The decision may either confirm, reduce, increase or vary the assessment (s.195). Oral reasons are sometimes given in simple cases, but reasons are generally stated in writing whether requested or not, and a copy, together with the decision, forwarded to the taxpayer and the ATO. Decisions and reasons for decisions are generally

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reported, unless the taxpayers anonymity cannot be preserved or the case has no general significance.

Alternative Avenues for Review of Commissioner's Decisions

46. The objection and appeal processes involving the Boards of Review and the Supreme Courts provided for in Part V of the Act are the only means whereby the correctness of an assessment may be challenged. This, combined with the fact that the production of a notice of assessment is conclusive evidence of the making of an assessment and the amount and particulars thereof (sub-s.177(1)) has the result, for example, of precluding a declaration that an assessment is invalid. Similarly, it is not possible to challenge an assessment by way of defence to an action for recovery of tax: see F.J. Bloemen Pty Ltd v. Federal Commissioner of Taxation (1981) 35 ALR 104.

47. Decisions relating to assessments made by the Commissioner under the Income Tax Assessment Act 1936 and by Boards of Review are within the classes of decisions which are a exempt from the Administrative Decisions (Judicial Review) Act 1977. (See Schedule 1(e) and (f) and Tooheys Ltd v. Minister for Business and Consumer Affairs (1981) 36 ALR 64, affirmed on appeal (1982) 42 ALR 260.).

COMMONWEALTH OMBUDSMAN48. The Commonwealth Ombudsman has jurisdiction to investigate complaints of defective administration. The Ombudsman's function is to establish whether there has been some defect in the administrative process, whether it be delay, inattention, incompetence, arbitrariness and so on. Although the Ombudsman does not have the power to substitute his own decision for that of the primary decision maker, his recommendatory powers have in practice proved to be very influential.

49. The Ombudsman is armed with a number of significant powers to obtain access to relevant files and information but his investigations are generally conducted in an informal manner. These features of his Office may enable him to achieve satisfactory solutions where more formal review mechanisms might prove more cumbersome or fail. The following table illustrates the extent to which the Ombudsman has been involved in investigating complaints against the Commissioner of Taxation.

TABLE 2: OMBUDSMAN STATISTICS RELATING TO COMMISSIONER OF TAXATION

Year ending 30 June 1981 1982Written Oral Written Oral

Complaints received 399 866 259 850Complaints finalised 413 714 237 715Outside jurisdiction 8 23 7 28Discretion exercised 102 110 75 108Withdrawn/lapsed 7 Nil 8 NilResolved substantially in complainant'sFavour 65 300 26 272Resolved partially in complainant's favour 23 104 21 121Resolved in Department's/Authority's favour 208 177 100 186

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Source: Office of the Ombudsman

50. The Ombudsman's Office has informed the Council that the largest proportion of complaints involving the Commissioner concern delay in the issue of assessment notices. A significant proportion also relates to delays in the time taken to refer objections to Boards and in obtaining a hearing by a Board. Other areas of complaint involve methods of enforcement and investigation employed by the Commissioner, and the estimation of taxable income by 'assets betterment' calculations. Another area of frequent complaint is the refusal to allow deductions sought by the taxpayer. However, the Ombudsman frequently exercises his discretion not to investigate such complaints on the ground that other review procedures are available to the taxpayer.

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PART II: THE DEVELOPMENT OF ADMINISTRATIVE REVIEW IN AUSTRALIA

Recognition of the Administrative Review Function51. A fair and equitable means for review of decisions affecting the rights of citizens is a basic human right. Article 14 of the International Covenant on Civil and Political Rights, to which Australia is a party, includes the following:

All persons shall be equal before the courts and tribunals. In the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.

52. In Australia, the need for means of review of administrative decisions has long been recognised. That recognition has achieved its fullest expression within the last decade, following the studies undertaken by the Commonwealth Administrative Review Committee ('the Kerr Committee') which reported in 1971 (1971 Parlt. Papers No. 144) and the Committee on Administrative Discretions ('the Bland Committee') which reported in 1973 (1973 Parlt. Papers No. 316).

53. Review on the merits is a familiar feature of the Australian administrative scene. Boards of Review are themselves one of the earliest and best known review tribunals. Their forerunner, the Board of Appeal, was first constituted in 1922 and, in 1925, was reconstituted in the form which has remained almost unchanged to the present day. The role to be played by the Board of Appeal as a simple, cheap and efficient alternative to the courts is evident from the parliamentary debates of the time. It was said, for example, that:

Parliament consented to the appointment of these Boards in order to give elasticity to the Act and a sense of finality to the taxpayer, and these objects can be best achieved by appointing to the Boards men with commercial training which has been secured outside the official life of a Commonwealth Department (Mr Watt M.P., Parlt Debates (House of Representatives) 10 October 1922, p. 3507)

and that:

by a system of Appeal Boards [it was hoped] dissatisfied taxpayers would be able to get redress at less expense than in the past (Mr Bell, M.P.., Parlt. Debates (House of Representatives) 10 October, p. 3508).

Later, in 1936, during debate on the present Income Tax Assessment Act, it was stated that the Board had originally been established:

for the express purpose of enabling taxpayers to appeal from any decision of the Commissioner with a minimum of expense and delay. That purpose has been adequately fulfilled, and, from its non-judicial character, it has proved to be the most satisfactory tribunal to which small taxpayers in particular can appeal. With its trained personnel it is generally regarded as being vastly superior to an ordinary Court for the determination of cases depending on ordinary business facts (Senator E.B. Johnston, Parlt. Debates (Senate) 20 May 1936, p. 1875).

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54. In subsequent years, many other boards and tribunals were established to review decisions in a variety of areas. The ad hoc nature of their establishment was to become, however, a matter for parliamentary concern. Speaking in 1967, the Hon E.G. Whitlam observed that there were:

forty-six Acts; eighty-two sections or groups of sections of those Acts under which appeals could be made; and forty-six different categories of boards, tribunals, committees and courts hearing such appeals. A tally of the separate bodies within the various categories, States and Territories would run to hundreds. These bodies seldom sit in public or publish reasons. There is too great a diversity in the existing bodies and too great a mystery in the existing methods (Parlt Debates (House of Representatives) 18 May 1967, p. 2339).

KERR AND BLAND REPORTS55. It was in this context that the Kerr and Bland Committees carried out their reviews. In paragraph 5 of its Report (Report of the Commonwealth Administrative Review Committee, 1971 ['the Kerr Report']) the Kerr Committee summarised the experience of administrative review in this way:

The subject of administrative review is one which requires to be considered in its entirety because it has been universally accepted that judicial review by the courts standing alone, by the prerogative writs, declaration or injunction under the existing law, cannot provide for an adequate review of administrative decisions. It has been the uniform experience of the common law countries, including the United Kingdom, the United States of America and New Zealand, that the traditional supervision by the courts of the administrative process must be supplemented by provision for review on questions of law or on the merits of administrative decisions affecting the rights and property of the citizen.

56. Noting that there was 'a compelling constitutional reason why no Federal Court could be constituted with a general administrative appeal jurisdiction in Australia' (para. 227), the Kerr Committee went on to recommend the establishment of a general administrative tribunal. At paragraph 233 it said:

We feel that there should be a general Administrative Review Tribunal to be used in those cases where an appeal is warranted and no real case exists for a specialist tribunal.

The Committee noted several possible criticisms of such a proposal, including that 'a general tribunal could not have the experience and expertise in particular fields' which was generally accepted to be a necessary characteristic of tribunals. The Committee observed that a general tribunal 'would need to have built-in arrangements for appropriate specialist members representative of the relevant government department or administrative authority in each type of case' (para. 230).

57. The Committee also went on to describe what it saw as desirable features of the constitution and procedures of administrative tribunals generally. In relation to the chairmen and members of those tribunals it said (paras 320 and 321):

We are of opinion that, wherever possible, the chairmen of tribunals should be legally qualified. This is already the case with many tribunals but it is not, by any means, a uniform requirement. Experience overseas has shown, we

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would argue, that legally qualified chairmen conduct proceedings more effectively and fairly than those drawn from other fields. There are, of course, exceptions but the general rules is correct - especially when parties before the tribunal are unrepresented.

Members should be chosen for their expertise in a particular field, and it is appropriate that they be appointed by the Minister. In many cases it is desired to secure representation on tribunals and we see no objection to the present practice of appointing on the nomination of particular organisations, e.g. as in the case of Medical Services Committees of Inquiry under the National Health Act. We see no objection to departmental officers being appointed to membership of tribunals, as in the case with Tax Agents' Boards when the process of adjudication is seen as arising naturally out of the course of administration. We do not think 'complete independence' is necessary as did the committee on Tribunals and Inquiries in the United Kingdom. Because private rights are affected we are of opinion that, where possible, part of the membership of the tribunal should be drawn from outside the Public Service.

58. In relation to the proposed general Administrative Review Tribunal, the Committee recommended that the Chairman should be a Federal Judge (paras 292, 293). The Committee regarded any disadvantages flowing from such an appointment to be outweighed by the advantages: increased status of the Tribunal, the capacity to rule authoritatively on all questions of law, and greater acceptability of the Tribunal's decisions (para. 293).

59. The terms of reference of the Bland Committee centred on the desirability of review of administrative discretions and the appropriate character of that review. The Committee noted with surprise the frequency with which provisions for formal external review were to be found in Commonwealth legislation (para. 41). In the course of its investigations it examined the operation of a range of tribunals, including the Boards of Review. This Committee, too, expressed reservations about the existing position. At paragraph 121 it said:

It would not be suggested that these various tribunals have not, in their respective fields, met a particular need and given much satisfaction to those for whose needs they were designed. In some cases, they were the product of close consultations between departments and interested groups. Yet this is not to say that expectations as to the manner in which the tribunals would function have always been fulfilled nor that the procedures they follow leave nothing to be desired.

60. The Bland Committee also reached the conclusion that a General Administrative Tribunal was a necessary feature of the administrative review scene. Although the Committee envisaged a Tribunal in principle similar to that recommended by the Kerr Committee, it sought to elaborate on and to qualify some matters of detail. At paragraph 141 of its Final Report (Report of the Committee on Administrative Discretions, 1973 ['the Bland Report']) the Bland Committee said:

The appointment of members, whether full-time or part-time, ad hoc or as members of the panels referred to below or departmental officers, should be in the hands of the Attorney-General. Under inter-ministerial arrangements, he should consult with the appropriate Minister about proposed appointments.

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Difficulties were expressed by the Bland Committee with the view of the Kerr committee (see above at para. 56) as to the involvement of departmental officers as members of the Tribunal. The Committee concluded, however, at paragraph 151:

We are, however, attracted to the model of the Taxation Boards of Review. A former officer of the Taxation Office is normally Chairman of such Boards but we were told by the Commissioner of Taxation that the practice has been that no such individual has ever returned to the Office and, thus having no prospect of promotion within it, cannot be suspected of owing any allegiance to it.

61. Largely in accordance with the recommendations of the Kerr and Bland Committees, several major changes to the administrative review system were implemented, the first being the creation of a general administrative review tribunal under the AAT Act, and others following under the Ombudsman Act 1976 and the Administrative Decisions (Judicial Review) Act 1977. The first of these, the Administrative Appeals Tribunal, is of principal relevance to this Report and is described in detail below (at paras 71-85).

62. Both the Kerr and Bland Committees considered the position of other tribunals, existing and future, in relation to the AAT. Both expressed the view that specialist tribunals should only be employed where necessary. The Bland Committee, in particular, drew attention to the need to rationalise finite resources. The Committee said at paragraphs 125-7:

In short, we take the view that the fewer the tribunals there are the more likely will be the most economic use of resources and a better and more even resolution of individual issues because the members of the tribunals will not be narrowly circumscribed in their jurisdictional range.

It seems to us that a separate tribunal is not to be justified solely on the grounds that, in some area of administration, the issues thrown up are so complex and the demand for review by a tribunal so great as to keep it fully occupied. This sort of problem could, in our view, be met if the same membership of one tribunal were assigned to deal with cases in the one area.

To pursue this, we would argue that, if the General Administrative Tribunal that we will be recommending had been in existence before the Taxation Board of Review system was inaugurated, that Tribunal might well have been used and the Board of Review system not created.

In recommending that existing specialist tribunals such as the Boards of Review should be closely examined to determine whether their functions could be performed more efficiently by a general tribunal, the committee considered that they should only be maintained with a separate existence where there was 'overriding reason' to do so (para. 187).

BASIC ELEMENTS OF EXTERNAL REVIEW ON THE MERITS63. The significance of the Kerr and Bland studies lies in their identification and accommodation of the various community interests which any system of administrative review must seek to attain, including: enhancement of administrative efficiency; justice to the individual citizen seeking review; and

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minimisation of the burden upon taxpayers.

In so doing they raise several issues which, in the Council's view, lie at the heart of the effectiveness of external administrative review on the merits.

64. Independence. Whether or not an external review mechanism is to be established in particular areas is, first, a matter of policy. However, once that decision has been taken it is of major importance that the independence of the tribunal from the decision maker whose decision is being reviewed should not be qualified except for good reason.

65. The Kerr and Bland Committees expressed the view that in some circumstances it may be desirable to have departmental officers as members of tribunals (see paras 292 and 148 respectively). The Council has on previous occasions expressed its views on the appointment of departmental officers on bodies reviewing decisions of that department. In its Second Annual Report 1978, Council stated that 'provisions should generally not be made for the appointment of public servants serving in the department whose decisions will be reviewed under the jurisdiction in question' (para. 63). It distinguished, however, the appointment of retired public servants (para. 62).

66. Distinctive Review Function. Within the new structure for administrative review, the respective roles of the courts and administrative tribunals are complementary. The distinctive functions of judicial review and review on the merits were explained recently by the Federal Court in the following terms:

The function of the Tribunal is, as we have said, an administrative one. It is to review the administrative decision that is under attack before it. In that review, the Tribunal is not restricted to consideration of the questions which are relevant to a judicial determination of whether a discretionary power allowed by statute has been validly exercised. Except in a case where only one decision can lawfully be made, it is not ordinarily part of the function of a court either to determine what decision should be made in the exercise of an administrative discretion in a given case or, where a decision has been lawfully made in pursuance of a permissible policy, to adjudicate upon the merits of the decision or the propriety of the policy. That is primarily an administrative rather than a judicial function. It is the function which has been entrusted to the Tribunal. (Drake v. Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at p. 589).

67. Fairness. The well-established standards of fairness which apply whenever a citizen challenges the legality of an administrative decision in the courts should be observed, as far as possible, when a citizen seeks review on the merits.

68. Equity. The Kerr and Bland Committees drew attention to the unsystematic manner in which means for administrative review had been established such that, while avenues for review were provided in some areas of decision making, they were not provided in others. Such a lack of consistency of approach, to the extent that it disadvantages some persons in relation to others, is manifestly undesirable.

69. Accessibility. The same consistency of approach needs to be carried through in the establishment of individual tribunals within particular geographical regions. The fair and equitable treatment of persons seeking

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review demands that review bodies be so constituted that they may carry out their functions to this end. The large distances between parts of the Australian continent can give rise to problems in this area as in others. Questions of cost may make it impossible to establish a review body which has a presence in each capital city so that review is as nearly as possible equally accessible to all. Where this can be done, or at least approached, it is important that a cohesive approach be maintained.

70. Informed Review. Effective means are needed to inform the tribunal of the relevant facts and the reasons for the decision. It is most desirable in the interests of administration that the department have the fullest opportunity to put these matters before the tribunal. Natural justice also requires that these matters should be conveyed to the person seeking review. There are other reasons, too, why this should be done. Review of any kind involves costs which need to be minimised. Apprising a person seeking review of the departmental view may not only in some cases pre-empt the need for review but can also assist in shortening the review hearing.

The Administrative Appeals Tribunal71. In implementing the recommendations of the Kerr and Bland Committees, Parliament followed closely the proposed structure for a general administrative review tribunal. Thus the AAT, established under the AAT Act, reflects not only the experience of administrative review gained over many years but also the detailed consideration of two expert committees.

72. Since its establishment, the performance of the Tribunal has been kept under review by the Council and the Parliament, and some amendments to the AAT Act have been made in the light of experience gained. The Tribunal represents the most effective forum for high level administrative review presently available. As such, it sets a standard to which, desirably, similar administrative review tribunals should conform.

COMPOSITION73. Members of the AAT are appointed by the Governor-General on the advice of the Attorney-General (sub-s.6(1)). The AAT is headed by a President who must be a Judge of the Federal Court of Australia (sub-s.7(1)). Other presidential members include Judges of Courts created by the Parliament, and Deputy Presidents who must be experienced legal practitioners (sub-s.7(1A)). Senior members may be experienced legal practitioners or persons with special relevant knowledge or skill (sub-s.7(1B)). Other members may be persons who are legal practitioners; who have had experience at a high level in industry, commerce, public administration, industrial relations, the practice of a profession or the service of a government; who have relevant academic qualifications; or who have special knowledge or skill relevant to a section of the AATs work (sub-s.7(2)). Certain powers of the AAT may be exercised only by presidential members.

74. Members, other than the President and other Judges, may be appointed in a part-time or full-time capacity (sub-s.6(4)). At present, there are eight Judges (all Judges of the Federal Court) and two Deputy Presidents who are presidential members, eight senior members (five of whom are part time) and twenty-six other members. These other members are at present all part time.

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75. An important feature of the Tribunal, which distinguishes it from many others, is its flexibility of constitution. In the absence of express statutory provision, the Tribunal may be constituted in several ways according to the nature and importance of the case (s.21). For example, a major case involving difficult questions of law may be heard by the President (or another Judge) sitting either alone or with the assistance of two other members. At the other extreme, a hearing involving largely questions of fact may be heard by one member alone. A variety of combinations of one and three man tribunals is possible between these two extremes. After a hearing has commenced, the Tribunal may be reconstituted at the request of the parties if that is appropriate (s.21A).

POWERS76. The jurisdiction of the AAT is limited to the review of decisions specified under the AAT Act or any other enactment (ss.25, 26). The present jurisdiction includes areas such as bounties, customs, insurance, freedom of information, export grants, social security, home savings grants, air navigation, export incentive grants, Commonwealth employees' compensation and deportation. In all, more than 130 statutes, ordinances and regulations now vest jurisdiction in the AAT.

77. For the purpose of reviewing a decision, the AAT normally has all the powers and discretions of the decision maker. The AAT may affirm or vary the decision, set it aside and make a new decision, or remit it for reconsideration in accordance with the Tribunal's directions or recommendations (sub-s.43(1)).

78. The Tribunal may make interlocutory orders (sub-ss.33(2)-(5)). Where considered appropriate, a preliminary conference of the parties, presided over by a member or officer of the Tribunal, may be convened in order to clarify the issues or, if appropriate, settle the matter (s.34). The Tribunal is empowered to give directions as to the procedure for a hearing (sub-ss.33(2)-(5)), to summon witnesses (sub-s.40(1A)), and to require the decision maker to provide a full statement of his reasons for the decision (s.38). The making of an application for review does not affect the operation of a decision, but an application may be made for an order staying that operation in order to secure the effectiveness of the hearing of the application for review (sub-s.41(2)). The Tribunal may also determine whether a person's interests have been affected by a decision for the purposes of joining the person as a party to the review (s.31). Extensions of time may also be granted, unless the enactment conferring jurisdiction provides otherwise. The enactment conferring jurisdiction may also modify the operation of other provisions (s.25).

PROCEDURES79. A person whose interests are affected by a decision may apply for review (s.27). No fee is payable. Persons other than the initial applicant may fall within this category and may become parties to the proceedings (s.30). A person whose interests are affected may also apply to the decision maker for a full statement of reasons for the decision (s.28). The decision maker is, in any event, required to lodge such a statement and relevant documents in his possession with the Tribunal (s.37).

80. The Tribunal sits in all capital cities and other cities as required. If appropriate, telephone conference facilities may be employed. Hearings are

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required to be in public but the Tribunal may order that a hearing be held in private or give other orders to protect confidentiality, having regard to any reasons advanced as to why such orders should be made (s.35).

81. Procedure is within the discretion of the Tribunal and directions as to the procedure to be followed at or in connection with the hearing may be given. The Tribunal is directed, however, to proceed with as little formality and technicality and with as much expedition as statutory requirements and a proper consideration of the matter permit (s.33). The Tribunal is not bound by the rules of evidence and may inform itself in such a manner as it thinks appropriate (s.33). Evidence may be required to be given on oath or affirmation (sub-s.40(2)). Witnesses may be summoned (s.61). Each of the parties, or their representatives, is to be given an opportunity to make submissions (s.34).

82. Decisions of the Tribunal are usually given in writing. Reasons for decisions may be given orally. If oral reasons are given, a party may request that reasons be given in writing (s.43). The majority decision prevails. A question of law arising at a hearing at which a presidential member presides is decided in accordance with the opinion of that member (s.42). A member with legal experience presides at hearings.

83. The Tribunal has no power to award costs except in the Commonwealth employees' compensation jurisdiction, but has a discretion to order the Commonwealth to pay fees of witnesses summoned at the request of an applicant (s.67).

84. An appeal on a question of law lies to the Federal Court (s.44). A question of law arising during a proceeding may be referred to the Federal Court at the request of a party or by the Tribunal of its own motion (s.45).

85. The variety of the subject matter of the AATs jurisdictions has been noted above. The availability to the Tribunal of members with the required expertise has been achieved largely through the appointment of part-time members with appropriate qualifications in areas such as medicine, aviation, accounting, valuation, social welfare, public administration and commerce. By the selection of appropriate members, it is possible to constitute the Tribunal in a manner most suitable to the subject matter of a particular case. At present only persons with legal qualifications have been appointed as full-time members but others may be appointed as the volume of cases in particular jurisdictions increases.

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PART III: ADMINISTRATIVE REVIEW IN TAXATION MATTERS - THE BOARDS OF REVIEW

86. The history of the Boards is long and distinguished. They have, however, been criticised to some extent in several respects in the submissions made to Council. It is likely that some of this criticism has stemmed in part from the fact that the Boards have remained virtually unchanged for nearly half a century.

87. The purpose of this Part, therefore, is to assess the Boards both in terms of that criticism and by comparison with the AAT. The Council has used this assessment as a basis for its conclusions and recommendations and has paid particular attention to the specific matters which it has identified in Part II as important features of external review on the merits.

Independence88. The possibility that a specialist tribunal may lack independence from the department whose decision it reviews arises in several ways. Whenever a tribunal has one particular party appearing constantly before it, as is the case with the Boards and the Commissioner of Taxation, there is a risk that tribunal members may become attuned to the kind of arguments put by that party. The degree of that risk and its effect are necessarily difficult to assess, but will clearly be alleviated by such factors as the frequency of change in tribunal membership and the variety of representatives appearing for the particular party. One way in which the risk may become evident was pointed to in an editorial article published in the Australian Taxation Review ((1980) 9 Australian Taxation Review 1 at p.2). The editors observed:

There is . . . a belief - whether or not it is well founded being not presently to the point - that taxpayers find themselves at a disadvantage, at least in certain classes of cases, before Boards of Review. Thus it has become commonly believed that taxpayers have very great difficulties in persuading Boards of Review that their purpose in acquiring property has not been a purpose of profit making by sale. Indeed, it does not appear to be going too far to say that there is an apprehension that taxpayers appear prima facie to be treated as untruthful and as persons whose evidence should not be accepted.

This viewpoint was strongly challenged in the submission of the Commissioner of Taxation as a reason for dissatisfaction with the practice of appointing as Chairmen former officers of the ATO. The Commissioner said:

The utter worthlessness of this 'reason' is the easiest of all to demonstrate because the facts can be ascertained with a minimum of research. I am surprised that those who advance this 'reason' have not bothered to check those facts. However, an examination of the reports of Board of Review decisions published in the C.C.H. series 'Australian Tax Cases' will disclose that there were 27 cases involving section 26(a) decided by the Boards between 1 January 1979 and 12 October 1982. The Commissioner succeeded in 13 of those cases; in 13 others the taxpayers were successful. In the remaining case both the Commissioner and the taxpayer were partly successful. I cannot imagine a better example of complete impartiality.

It is Council's view, however, that the Commissioners statement is meaningful only if the relative proportions of correct and incorrect decisions being reviewed

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could be known independently of the decisions of the Boards of Review. Clearly, this is not possible.

89. The nub of the problem is, as one member of a Board put it, that 'independence is a state of mind'. The difficulty thus presented is that those most directly concerned to know the state of that mind are unable to do so. External indicia of independence consequently become of real importance. The confidence which litigants have in the independence of the judiciary is a great strength in our legal system. Such confidence is no less important in the context of administrative review.

90. The Commissioner, and former and present Chairmen of Boards who made submissions to the Council either stated that they were unaware of any criticism of lack of independence of the Boards or attributed such criticism to minority interests. The picture presented to the Council is otherwise. While no evidence was put before the Council as to specific matters which would demonstrate any actual lack of independence, it has no reason to doubt the seriousness or breadth of discontent which was expressed in other submissions. It is apparent that the primary, if not the sole, reason for lack of confidence is the position of former officers of the ATO as Chairmen of the Boards.

91. The Australian Society of Accountants in its submission stated that 'it cannot be stressed too strongly that [Boards of Review] must not only be independent of the ATO but must be seen to be so'. The Society added that while 'in practice the Boards are extremely fair and go out of their way to be independent they cannot in our view be "seen to be" while a former senior employee of the ATO is a Chairman of each Board'. Other submissions also drew attention to the issue of lack of perceived independence. The New South Wales Bar Association, for example, drew attention to 'some significant lack of confidence in the impartiality, or appearance of impartiality, in Boards of Review'. The Law Society of New South Wales in its submission referred to the fact that 'there has been considerable adverse comment from time to time about the apparent lack of independence'. Dissatisfaction was also expressed by the Taxation Institute of Australia in the following terms:

The Institute strongly supports the principle that whatever the tribunal may be to which a taxpayer refers the disallowance of his objection that tribunal must not only be independent of the Australian Taxation Office but must be seen so to be.

In saying this the Institute does not wish for a moment to be thought to be criticising the Boards of Review past and present who have served the community well and who have in fact operated quite independently of the Australian Taxation Office. However, the present practice of appointing not merely as a member but as Chairman a former officer of the Taxation Office or the former Deputy Commissioner of a State giving to him power to rule on evidence that may be admitted and control of procedural matters such as adjournments is a matter of adverse comment not only among practitioners but also among clients.

92. It was stated by Chairmen and some members that rulings on procedure and evidence were most frequently made after consultation with the other members of the Board concerned. On the other hand, it is apparent from submissions received that the Chairman's role in such matters is one source of a lack of confidence on the part of some taxpayers in the independence of the

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Boards. Rulings, even though based on a collective decision as described above are, nevertheless, made in the Chairman's name.

93. The Council also notes that although the Chairmen and members of Boards are appointed by the Governor-General on the advice of the Cabinet, it is the practice for recommendations to originate in the ATO. The Council sees this practice as neither necessary nor desirable. Although the subject matter of Board review is in the field of taxation, the function of the Board is adjudicative. In the Council's view, it would be more appropriate for such appointments to be made through the Attorney-General.

94. From a reading of the parliamentary debates of the time, the Council has concluded that the primary aim in selecting personnel for the first Board of Appeal was to obtain the services of persons experienced in taxation matters. It sees the appointment in 1922 of a former Assistant Commissioner of Taxation to the first Board in this light, rather than as indicative of a desire to appoint a former taxation officer because of his experience in the ATO.

95. The justifications for the practice, suggested in several submissions, were as follows: that it is appropriate that ATO and non-ATO perspectives be balanced; that knowledge of ATO procedures was of value in the deliberations of the

Boards; and that the administrative experience of former ATO officers was of benefit in

performing the functions of Chairman.

The Council does not regard these matters as providing sufficient reason to compromise the legislative policy inherent in the provision of a means for external review. To the extent that an ATO perspective or a knowledge of ATO procedures are matters relevant to the deliberations of a Board, they may be the subject of evidence at the hearing or otherwise be raised in submissions made on behalf of the Commissioner. Previous administrative experience no doubt assists holders of the office of Chairman, but it is not seen by the Council as a necessary qualification for that office.

96. The Commissioner drew attention to the Bland Committee's specific endorsement of the practice (see para. 151). The Council has itself drawn similar conclusions concerning appointment of retired public servants (see Second Annual Report 1978, para. 62) but it should not be assumed that these conclusions should apply in all circumstances. If independent external review is a worthwhile goal, then it should not be unnecessarily compromised. It may be difficult for even former officers to cast aside practices and modes of thinking developed perhaps over decades of service within a particular department. The Taxation Institute of Australia drew attention to the additional fact that a serving Board Chairman may be called upon to review matters which involve assessments and/or exercises of discretion made either under his own name (although the Council understands that steps are taken to avoid this as far as possible) or under the names of former colleagues.

97. That the practice of appointing former officers of the ATO as Chairmen of the Boards was viewed unfavourably by all of the bodies representative of taxation practitioners is a matter for concern. Given that the problem could be solved without detracting from the effectiveness of review in taxation matters,

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the Council sees the damage done to the image of independence of the Boards by these appointments as unfortunate and unnecessary.

Membership98. It is clear that the primary qualities required of members of an administrative tribunal are decision making ability and expertise in the area giving rise to the decision for review. No submission made to the Council questioned the capacity of members of the Boards in either of these respects. Putting aside the concern expressed over the participation of former ATO officers as Chairmen of the Boards, it would appear that the format of Board membership - one legal member, one accounting member, and one ex-departmental officer with experience in the taxation field - is considered generally appropriate. Certain qualifications in some types of cases were, however, expressed and are treated below (at paras 113-14).

99. When constituted as a full Tribunal, the AAT adopts a similar membership format. Drawn from the pool of available members the most common combination is a senior member (an experienced legal practitioner) and two part-time members with expertise in the relevant area. A significant difference between the Boards and the AAT, however, is the range and variety of experience and expertise of AAT members. When coupled with the ability of the Tribunal to vary its constitution and to reconstitute itself in appropriate cases, this difference can lead to important advantages. Of particular note is the availability of Federal Court Judges as presidential members.

100. Prior to seeking review, a taxpayer must now make a choice between review by a Board or by a Supreme Court. The considerations to be taken into account are many and are certainly not insignificant. Some have been indicated above (at para. 24). Perhaps of greatest significance is the fact that, unlike the Boards, the Courts are not able to exercise the discretions of the Commissioner (see above, para. 24). In the Council's view this disadvantages a taxpayer who, though all other considerations would lead him to seek review by a Court, would be unable to have that exercise of discretion reviewed unless the Commissioner had erred in law. Conversely, a taxpayer who, perhaps for reasons of cost, would seek review by a Board may feel that his case involved such complicated legal questions that he would prefer it to be handled by a Court.

101. When the Boards were created there was no existing tribunal which exercised administrative functions constituted by a member of the judiciary. Although the logical distinction between factual and legal questions is reflected in the choice of both a administrative and a judicial forum for review, in practice the distinction is blurred. The particular constitution of the AAT was selected with these problems in mind. Certainly, the availability of a Judge has allowed many substantial issues to be dealt with successfully by the AAT, and important principles of general application to be settled authoritatively without the need for further appeal. These factors were referred to with approval in the submission of the Taxation Institute of Australia.

102. By contrast, several Board members raised the view that, in the past, some single Judges in the Supreme Courts had lacked experience in taxation matters. That issue is unlikely to arise if the AAT were involved, since presidential members could be appointed with the taxation jurisdiction in mind.

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Constitution103. The way in which an administrative tribunal is constituted, as distinct from the particular qualities of its members, may have a bearing on the quality of the review it affords. This may be so especially in a tribunal whose large volume of cases or geographical jurisdiction require it to have an extended institutional structure.

104. The reason for the separate existence of the three present Boards seems largely historical. Initially, the volume of cases was such that it was easily handled by one Board. The additional Boards were created as that volume increased. As described above (at paras 34-5, 43) the Boards are constituted and function independently of each other. This fact has given rise to concern as to the ability of the Boards collectively to deal consistently with cases coming before them. Questions have also been raised as to the cost efficiency of the fixed three-man membership of the individual Boards.

105. In the Council's view, consistency is of fundamental importance to proper administrative review. Just as all persons affected by decisions within a particular area of administration have the right to expect fair and equal treatment, so the same expectation applies on review of those decisions. Consistency is a basic condition for ensuring the status and authority of a review tribunal in the eyes of persons coming before it.

106. The Council was informed by the Board Chairmen that there is no formal means of communication between Boards for the purpose of standardising the approaches of the respective Boards to their task. Some informal discussion may occur when a Board is sitting away from its home base and sharing the premises of another Board. Nevertheless, the Council considers that the lack of uniformity in substantive decision making will not be a major problem as long as decisions of the various Boards continue to be published. Some differences of opinion have occurred but they have not to the Council's knowledge been of a serious or lasting nature. On this point, the Commissioner observed:

The fact that there are different approaches to the cases by the several Boards of Review can hardly be described as a problem. Differences are almost a daily occurrence between the judges in the various courts. It is a fact of life. It would be remarkable if there was unanimity between all the various members or benches of the AAT who might have to deal with taxation cases.

107. It is important that the substantive decisions of the Tribunal apply principles of law uniformly, not only for the obvious reason that like cases should be dealt with in like manner, but also because the clear enunciation and application of relevant principles serves as a guide for original decision makers. Although it is not possible entirely to eliminate differences, the Council nevertheless sees it as beneficial that they be minimised as far as possible.

108. The way in which the AAT is constituted and operates helps to achieve this. Regular formal consultation at the senior member and presidential member levels enables problem areas to be identified and uniform approaches to be formulated. The range of available members means also that the composition of the Tribunal can be varied both within special jurisdictions and over all jurisdictions.

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109. Two points of considerable concern to the Council stem from the institutional structure of the Boards. First, the Boards are appointed and operate independently of each other. Although cases are heard in the order in which they are received, each Chairman has a discretion to direct otherwise, and reviews are conducted as each Chairman from time to time directs. The Council has noted that substantial criticism has in the past been made by practitioners of some procedural rulings made by the Boards. While, in given instances, good reasons for those rulings may have existed, it is apparent that, as is to be expected, the rulings frequently reflect the particular approach being adopted by the Chairman and the Board at the time. There is, in the Council's view, a real danger that taxpayers in different parts of the country may be treated differently.

110. The Council considers below the unevenness of delays before the respective Boards and the underlying reasons (see paras 117-20). Those reasons show that this is a problem which the individual Boards can do little, if anything, to alleviate as it arises, primarily, from the separate constitution of the Boards. In the Council's view, unless the geographical nexus between the respective Boards and the cases referred to them is broken, the problem is only soluble by consolidation of the existing Boards so as to allow greater flexibility in their constitution for particular localities. This problem is presently dealt with by the AAT on two levels. The centralised scheduling of hearings assists in the prevention of backlogs in particular localities and is made possible by the flexible constitution of the AAT such that individual members, rather than groups, can be allocated to particular cases.

111. Not all cases presently dealt with by the Boards raise complex legal issues. Indeed, most significant is the wide variety of issues presented, ranging from simple to complicated factual situations, sometimes including complex legal questions, but other times not. Cases may involve disputes over amounts less than $100 or several hundreds of thousands of dollars. The Taxation Institute of Australia estimates that, in 1981, 60% of cases involved amounts less than $5000, 35% less than $1500, and 23% less than $500.

112. As a general rule, cases involving insubstantial amounts should not receive any less consideration. Nevertheless, systems of administrative review must operate within, and make the most effective use of, limited resources. This requires, in the Council's view, that decisions for review involving differing degrees of complexity and amount are most effectively dealt with by a review body capable of constitution and reconstitution in accordance with the needs of the particular case.

113. The second aspect of the constitutional structure of the Boards which concerns the Council, their inflexible three-member constitution, was a matter commented upon in many of the submissions. The majority of those so commenting agreed with the suggestion made in the Secretariat's discussion paper that many cases did not demand the consideration of three member Boards. The idea of single member tribunals was especially approved as a means of expediting cases, and several Chairmen and members of Boards also endorsed this view. Some commented however, that single member tribunals may not always be of advantage to the taxpayer. One member also expressed the view that single member tribunals would not of themselves overcome the structural problems currently being experienced by the Boards. He concluded that 'nothing short of total restructuring will streamline the existing process'.

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114. In his submission, the Commissioner doubted that the use of single member tribunals could be advantageous. He said:

Cases involving small amounts are troublesome but are not as simple of resolution as the discussion paper suggests. In the first place it does not always follow that because there is only a trifling amount in dispute the case is either simple or unimportant. The classic example was probably the well-known 'fares to and from work' case of Lunney & Hayley v. F.C. of T. (1958) 100 CLR 478. Likewise Lodge v. F. C. of T. (1972) 128 CLR 171 involving child-minding expenses and the various 'home office' cases which also went to the High Court.

The problem lies more in the proliferation of claims under section 51(1) of the Act to deduct expenses of protective clothing, amounts allegedly expended on newspapers, entertainment, overseas travel by school teachers in long vacations, even down to an airline hostess who claimed the cost of her underwear. While I take the point that the AAT can appoint a single member as the tribunal, I see a grave risk that a multiplicity of single members deciding cases of these kinds would lead to a chaotic situation because of the real likelihood of divergent views amongst the single members. I have myself given consideration to the desirability of approaching the government to amend the law to enable the existing Boards of Review to sit as one man tribunals and although I have not arrived at a final conclusion I am far from satisfied that one man tribunals should be appropriate.

Limited to the context of the Boards of Review, the Council considers that the Commissioner's caution may be appropriate. The AAT, however, is equipped to deal with the problems raised. Although it is not a statutory requirement, cases warranting only a single member Tribunal are normally heard by a senior member. As outlined above, these members meet regularly. Means exist also for the identification and handling of those cases which prove to be more complex than the amount at stake might suggest. Under sub-section 21(2) of the AAT Act the Tribunal may be constituted by a presidential member alone where all the parties so request before the commencement of the hearing. At any time during the hearing a party may request the Tribunal to be reconstituted in a manner permitted by sub-section 21A(3). In this case, the President of the Tribunal may, if he considers that the matters to which the proceedings relate are of such public importance as to justify him in so doing, accede to the request.

Expedition of Cases115. A major issue raised in most submissions to the Council concerns the time taken between the making of an assessment and the final resolution of a dispute. Statistics relating to assessments, objections and reviews are published by the Commissioner of Taxation in his Annual Reports to Parliament. Relevant statistics for the last seven years have been collated in Appendix B. These statistics indicate that over the years covered: Numbers of returns lodged are increasing steadily, rising from 7 917 000 in

1975-76 to8 602 000 in 1981-82.

Numbers of assessments issued each year have remained relatively constant. Numbers of objections had nearly trebled, rising from 73 997 in 1975-76 to

201 376 in 1980-81, but have fallen back in 1981-82 to 189 311.

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Increasing numbers of objections remained unconsidered at the end of each year - 15 798 in 1976 compared to 80 654 in 1982.

Numbers of requests for reference to Boards and Courts have been approximately 10% of the number of objections annually.

A very small proportion of requests for reference ultimately are referred to Boards of Review. Of those not referred about 50% are settled, about 25% allowed by the Commissioner and about 25% withdrawn by taxpayers.

The number of cases awaiting hearing before Boards of Review has risen by approximately 50%, from 487 in 1976 to 768 in 1982.

Statistics on numbers of objections allowed or disallowed are not kept, but the ATO estimates that approximately 75% are either wholly allowed or allowed in part.

116. Several submissions suggested that the lapse of time between assessment and ultimate referral to a Board was more substantial than that occurring once a case was referred to a Board. The Council notes, however, the reversal in the trends of numbers of objections and requests for reference. These were pointed to by the Commissioner as the result of the introduction of Objection Review Units intended to deal with objections in a more thorough and uniform manner. The Commissioner was confident that the new trends would continue. Other factors will no doubt also assist, such as the decline in tax avoidance activity noted by the Taxation Institute of Australia, and the introduction of higher penalty interest rates for tax not paid when due.

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117. The Commissioner has informed the Council that the delay in obtaining a hearing before the Boards as at 30 June 1982 was as follows:

Board No. 1 18 monthsBoard No. 2 29 monthsBoard No. 3 9 months

118. These figures indicate a need for concern, not only in respect of the extent of lapse of time before a dispute is resolved, but in the unevenness of the backlogs before the respective Boards.

119. The ATO informed the Council that, as far as possible, cases which have arisen in the same geographical area or areas are referred to the same Board. This is done in part to ensure that the ATO cannot be thought to have been 'forum shopping' but it is also obviously desirable for logistical reasons. Necessarily, some areas have a higher volume of cases than others. Although the Council is unable to determine to what extent it may be so, it is also possible that the situation may be partly a result of the respective methods adopted by the Boards in arranging cases for hearing. Given these factors it is difficult to see how the present situation can be altered.

120. The Council sees that situation as undesirable for the reason that it results in taxpayers in certain parts of the country being disadvantaged in comparison with others.

121. The overall extent of present backlogs is also a matter for concern. The Council notes that legislative amendments are proposed which will require taxpayers who wish to dispute their assessments to pay the assessed amount when it falls due or be subject to payment of interest at 20% per annum. Interest at current treasury bond rates is to be paid on any sums refunded. In addition to the ordinary consideration to be given to the interest of the taxpayer in having his dispute resolved as quickly as possible, it will be important to minimise the payments out of the revenue by way of interest on tax refunded.

122. The Council is unable to say whether the situation presents only a short-term problem. If the confidence of the Commissioner in the beneficial effects of the new Objection Review Units proves justified some improvement may follow. It is to be hoped that such improvement may flow through to the number of cases referred to the Boards.

123. In any event, it seems inevitable that additional Boards will in time need to be appointed as the number of returns lodged continues to increase annually (see para. 48). In the Council's view, the additional establishment costs that would be incurred indicate that consideration should be given to less costly alternatives.

124. Given a sufficient number of members, it is likely that either the Boards or the AAT could expedite cases at a satisfactory rate. However, unless the way in which cases come before the various Boards is altered, it is likely that some imbalance in pending cases would remain.

Nature and Scope of Review125. The role originally envisaged for the Boards has been noted above (see para. 53). Investigation of parliamentary debates has revealed a disparity

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between the way the Boards are operating and their intended role. The Council notes the view expressed by Mr P.J. Lanigan, a former Second Commissioner of Taxation, in his submission to the Council that:

the system has evolved away from the original conception of a quick, expeditious and practical administrative review of the decisions of the Commissioner of Taxation.

126. The intended role of the Boards was a matter frequently raised in submissions. The Institute of Chartered Accountants in Australia expressed its concern in this way:

There was general agreement that the concept of replacing the present Taxation Boards of Review had merit in that the Boards are clearly not working in the way that was originally intended and are proving less and less able to fulfil this role.

127. Council was not able to inspect the Boards in operation as is its usual custom when reviewing administrative tribunals. It was prevented from doing so by confidentiality considerations and by the rule that Board hearings are to be held in private unless the taxpayer requests otherwise. However, Council was informed by former Board members that the Boards hear cases in a fashion generally similar to the AAT.

128. Council has referred above (para. 81) to the flexibility of procedures at hearings before the AAT, so necessary in dealing appropriately with a broad review jurisdiction. At the level of full hearings, Council would anticipate the AAT to adopt a similar degree of formality as presently exists before the Boards. The AAT would retain, however, an important element of informality through its preliminary conferences.

DISCRETIONARY POWER129. The New South Wales Bar Association drew attention to the increasing number and width of discretions vested in the Commissioner under taxation legislation. The Association emphasised that this was a matter to be considered in the context of the Boards' apparent lack of impartiality, since it was in the exercise of discretions that impartiality was of greatest importance.

130. The Council notes that there are many hundreds of such discretions to be found in taxation legislation. The considerable width of some discretions inevitably raises difficulties in their review. Significant questions as to the appropriate balance between community and individual interests will be involved.

131. Particular aspects of this balancing of interests in taxation matters have been noted earlier in this Report (see paras 15-18). They demonstrate the need for a tribunal reviewing such discretions to have expertise and experience in applying broad policies to particular facts. The jurisdictions of the AAT often concern review of discretions of varying types. The Tribunal has gained considerable experience in the review of broad discretions involving conflict between public and individual interests.

GROUNDS OF OBJECTION132. Considerable criticism was made of the effect of paragraph 190(a) of the Income Tax Assessment Act which restricts taxpayers to the grounds set out in the notice of objection. The frequency with which taxpayers may be

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disadvantaged by an inability to amend grounds of objections would not appear to be substantial. The Commissioner stated, for example, that of 1134 Board decisions reported since 1969, in only eleven cases did taxpayers wish to introduce new grounds. As such, any problem arising from this situation was in the opinion of the Commissioner 'more imaginary than real'. The infrequency of the problem, however, does not detract from the undesirability of such a limitation which, in Council's view, runs contrary to the purpose for which means for review of administrative decisions are provided. Essentially, the effect of paragraph 190(a) is to prevent the review body from considering all issues relevant to the disputed assessment whenever the taxpayer fails to state in his objection all grounds open to him. This point was stressed by the Taxation Institute of Australia in its submission:

It has been commonly asserted that the present statutory regime rests on some perceived public policy that the Commissioner might be disadvantaged if a taxpayer could at the last moment introduce new matters and that he must know with precision the case he has to meet, since knowledge of the real facts is uniquely within the possession of the taxpayer.

This assertion should be challenged. If a dispute arises between the Commissioner and a taxpayer and it is forwarded to a Court or referred to a Board the Commissioner, although as a result of the adversary system adopted in Australia an opponent of the taxpayer, appears before the relevant tribunal not to exact tax improperly payable but to assist the tribunal in coming to an answer of the statutory question as to whether the assessment is excessive having regard to the real facts and the law. In fulfilling this role, the Commissioner can never be disadvantaged if the real argument as to why the assessment is excessive is put to the relevant Tribunal.

133. No such restriction presently exists in any of the jurisdictions exercised by the AAT. In the Council's opinion, such a restriction is not consistent with the exercise of administrative review powers where they involve the exercise of all the powers and discretions of the original decision maker.

PREHEARING PROCEDURES134. Several submissions drew attention to the lack of information given to taxpayers and the problems this presents. The Taxation Institute of Australia stated:

The Institute supports recommendations that the Commissioner be required to convey to a taxpayer the reasons for the particular decision made by him to disallow a deduction, increase assessable income etc. These reasons should not be allowed to be so truncated (as with the present Statement under Regulation 35) that they are entirely formal and virtually useless.

There remains a question as to when such reasons should be given. In the view of the Institute these reasons should be given not at the time the matter is listed before the appeal tribunal but at the very time the assessment is made. This is particularly so if the law be retained in its present form requiring a taxpayer to be bound by the terms of his objection. There should always be a right in a taxpayer in an appropriate case to challenge the adequacy of the information provided.

The Law Society of Western Australia also submitted that a full statement of reasons should accompany an assessment if taxpayers were to be bound by the

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grounds of their objection. It is likely, however, that such a requirement would place a heavy burden on the ATO. The Commissioner felt that it could only be achieved at the cost of numbers of assessments issued, or by significant increases in staff. The Council notes the view, explained by two of the Board Chairmen in their submissions, that a full statement of reasons is unnecessary as the taxpayer can be taken to know all the relevant facts of his case, not all of which may be in the possession of the Commissioner. In the Council's view, this argument is beside the point. It is always in the interests of efficient review that the person seeking review be made aware of the actual basis of the challenged decision, not only so that the actual matters in dispute can be readily identified, but so that a sensible judgment as to the worth of challenging the decision can be made.

135. All applicants for review by the AAT presently have a right to a detailed statement of reasons both at the stage when they are contemplating seeking review and when review has been sought (see above para. 82). The requirement under section 37 of the AAT Act that a decision maker is to provide the Tribunal with a statement of reasons for the decision is the counterpart of regulation 35 of the Income Tax Regulations. Under section 37, however, a much fuller statement is required than is the practice of the Commissioner to provide under regulation 35.

136. The Taxation Institute of Australia expressed its support for amendments giving rise to: definition in advance of hearing of real issues and the elimination of

abandoned issues; provision for particulars or discovery to be ordered (not presently within the

power of the Boards); agreed statements of facts or documents to be prepared where appropriate; hearing dates to be determined in consultation with the taxpayer's advisers.

137. Preliminary conferences and directions hearings conducted by the AAT are instrumental in achieving these ends. The primary purpose of the directions hearing is to enable the member presiding at the hearing to identify the issues more precisely and to give directions as to the procedure to be followed at or in connection with the hearing. Directions may be given, for example, as to numbers of witnesses to be called and as to the exchange of proofs of evidence prior to the hearing. In appropriate cases, it may be possible also to consider ways of reducing the time needed at the hearing to resolve peripheral issues. The Tribunal has been able to use this procedure to significant advantage in cases involving broad discretionary powers and, hence, a potentially wide range of issues. The ability of the Tribunal to keep the hearing of a matter within reasonable bounds has been a significant factor in keeping its workload within manageable proportions. The decision by the President of the AAT to convene a preliminary conference, often as an alternative to a directions hearing, depends on the nature of the case. The procedure is designed to achieve settlement through an informal, confidential meeting between the parties under the guidance of a member of the Tribunal. It has been found that the procedure is most effective in promoting a significant number of settlements in, for example, social security matters. The preliminary conference also serves the purpose of providing a forum in which issues can be identified and informal directions as to the conduct of the hearing can be given. As with directions hearings, the advantage of preliminary conferences lies in the reduction or elimination of time needed by the Tribunal in the hearing of matters.

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138. Several Board Chairmen and members expressed doubts as to the value of such procedures in taxation matters. It was felt, for example, that they may be too time consuming, costly, and would lead to further delays. On the other hand, the Law Societies of New South Wales and Western Australia and the Institute of Chartered Accountants in Australia each viewed their adoption with approval.

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PART IV: CONCLUSIONS

Need for Reform139. The discussion paper circulated by the Council's Secretariat drew a wide range of responses. The organisations representing practitioners in the taxation field, and interested individuals, drew attention to several aspects of the type of review afforded by the Boards which they saw as unsatisfactory. These views were not generally shared by the Commissioner or the Chairmen and most members of the Boards who felt that, on the whole, the current review procedures were adequate. On the other hand, one Board member expressed the view that Board proceedings required substantial restructuring and, in his opinion, there was no room for reform within the present structure. He concluded that, against that background, 'the AAT seems the most suitable vehicle'. In the Council's view, the nature and the extent of the criticisms of the Boards indicate the desirability of some reform. It is Council's view that the AAT review model provides a guide in recommending reform.

Options140. Council has examined, in the light of the above conclusion, a range of options with the view to recommending an appropriate system of external review of taxation decisions.

APPEAL TO THE AAT141. Any lack of confidence in the impartiality of the Boards could be countered by the provision of an appeal from the Boards to the AAT. The Council sees this solution as unsatisfactory for the reason that a substantial criticism of the present system is that the final resolution of disputes is too long delayed. Even if the insertion of the AAT as a stage in the review process were to be in substitution for the present appeal to the Supreme Court, it would not significantly shorten that process.

BOARDS AS QUASI-INTERNAL REVIEW BODIES142. In several areas an intermediate review stage is utilised before review by the AAT. As in the case of the Social Security Appeals Tribunals, the review body may operate in closer connection with the Department. Such quasi-internal review combines a form of reconsideration within the departmental framework with the introduction of a fresh viewpoint from outside the Department. The citizen can thus normally obtain a 'second opinion' quite speedily. This option, which would have the effect of reducing the degree of formality in the review process, is attractive in that the manner in which the Boards now operate could be readily adapted to it. Such a reform would not, and would not be intended to, remove problems as to the Boards themselves. The provision of an appeal to the AAT from a decision of a Board, however, would provide a dissatisfied taxpayer with a means of recourse to a wholly independent review body. The difficulty in the way of this option, too, is the length of time it implies before final resolution of cases. Conceivably, this could be alleviated if the internal reconsideration process now undertaken after a request for reference within the ATO were truncated. It is questionable whether this could be achieved without seriously weakening centralised administration of taxation legislation, an essential feature of the uniform application of that legislation. Moreover, the Council would not wish to discourage effective

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internal reconsideration which it sees as desirable. For this reason, the Council has not considered this option further.

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A TAX COURT143. The creation of a specialist Tax Court was an alternative raised by some State Councils of the Taxation Institute of Australia. Although its terms of reference centre on the appropriate forum for administrative review of taxation matters, the Council has considered whether a specialist court dealing solely with taxation cases would have desirable characteristics not otherwise available. It has concluded that such a court is not warranted. Having regard to the tenor of the submissions made to it, the Council doubts that such a proposal would have general support. The New South Wales Bar Association stressed the need for review of discretions vested in the Commissioner and pointed out that for constitutional reasons a full review of these discretions could only be undertaken by some body not purporting to exercise the judicial power of the Commonwealth. The main thrust of other submissions was to favour a body proceeding with a minimum of formality rather than one with court like structures. The Council itself is unable to see any advantages in a Tax Court which might not also flow from a tax jurisdiction being vested in a body such as the AAT. Indeed, a body such as the Tribunal whose members include a number of Judges of the Federal Court, would in effect be a de facto Tax Court.

144. In the Council's view, therefore, there is no reason why an additional review entity should be created when the proposed reforms may readily be accommodated within existing structures.

TRANSFER TO THE AAT145. Views of Submissions. Reform of the Boards so as to correspond to the AAT model raises the question whether it would be a more sensible course to transfer the review of taxation matters to the AAT. Although the opinion was generally expressed in submissions favouring reform that the review body should resemble the AAT, not all felt that the review body should necessarily be the AAT. The Law Society of Western Australia, for example, stated:

The best features of the Administrative Appeals Tribunal ('the Tribunal') should be adopted.

If the best features of the Tribunal system are adopted, it does not really matter whether the Boards continue but in the new form, or whether the functions are taken over by a specialist tax division of the Tribunal.

The Institute of Chattered Accountants in Australia and the Australian Society of Accountants expressed similar views. The Institute said:

There was general agreement that the concept of replacing the present Taxation Boards of Review had merit in that the Boards are clearly not working in the way that was originally intended and are proving less and less able to fulfil this role.

On the other hand if the Boards of Review could be reformed in such a way as to enable them to work effectively, there is some support for the retention of the separate specialised tribunal to deal with taxation matters.

The Institute nevertheless expressed a preference for a transfer of functions to the AAT, provided it had sufficient resources and expertise to carry out those functions. The Australian Society of Accountants felt that reforms in the existing system were preferable but noted that they 'would be unlikely to be

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effected in practice or at best would take excessive time to be implemented'. The Society supported a transfer of functions to the AAT as a way of achieving the urgent improvements it saw as necessary.

146. Both the Victorian Bar Council and the Law Society of New South Wales preferred the AAT to the Boards as the review tribunal in taxation matters.

147. The Taxation Institute of Australia noted that some of its State Councils were not in full support of a transfer of jurisdiction to the AAT and that those Councils had expressed reservations about the suitability of particular aspects of the AAT model. The Council considers these matters below (see paras 159-62). The remainder of the State Councils saw a number of benefits flowing from such a transfer.

148. The New South Wales Bar Association saw no present need to transfer functions to the AAT, but it felt that the question should be reviewed in the light of any further increase in the extent of discretions vested in the Commissioner under taxation legislation.

149. The Commissioner of Taxation, the present Chairmen and most members of the Boards were strongly opposed to any transfer of jurisdiction to the AAT. The Commissioner submitted:

The AAT has operated for about 7 years. The Boards of Review have been in existence in their present form since 1925, i.e. 50 years before the establishment of the AAT. They and their modus operandi are familiar to all those professional people who practise in the taxation field. I do not suggest that there may not be some desirable changes but I doubt very strongly that much support would be found for their incorporation into the AAT.

On the information before it, however, the Council is unable to agree with the Commissioner's assessment as to lack of support for the incorporation of the Boards into the AAT. The complexity of taxation legislation was given by the Commissioner as a further reason why jurisdiction should not be transferred. He said:

There can be no doubt that taxation is a very specialised branch of the law and in my view it requires a specialist tribunal to deal with the wide variety of technical problems that arise in the course of administering and interpreting that law.

The Commissioner went on to say that he did not believe that members of the AAT had the necessary expertise. The Council accepts that taxation is a complex area of law and that, amongst legal and accounting practitioners, it is regarded as a specialised field of practice. It endorses, however, the views expressed by the Bland Committee in this regard at paragraph 126:

It seems to us that a separate tribunal is not to be justified solely on the grounds that, in some area of administration, the issues thrown up are so complex and the demand for review by a tribunal so great as to keep it fully occupied. This sort of problem could, in our view, be met if the same membership of one tribunal were assigned to deal with cases in the one area.

The Council does not accept that to the extent that the AAT presently lacks expertise it would be unable to acquire it. It is apparent that suitable persons have in the past made themselves available to serve on the Boards, and similarly

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suitable persons would no doubt make themselves available in the future as members of the AAT.

150. The Council's View. The Council has been unable to discover any overriding reason for the retention of the Boards as specialist tribunals. In the Council's view, there is nothing inherent in the taxation legislation nor in the mode of operation of the Boards which suggests that the AAT would not be appropriate to carry out a review of taxation decisions or that it would not be able to do so at least as well as the present Boards of Review. On the contrary, the Council believes that there are positive reasons for preferring the AAT to the Boards of Review, not only in terms of redressing the factors which now detract from the efficiency of the Boards and from their appearance of independence, but in introducing features which can assist in the resolution of tax disputes.

151. The flexibility in constitution of the AAT would enable the Tribunal to be constituted most appropriately to meet the needs of the particular case. Certain beneficial effects would flow from this in that a greater number of cases could be handled than is the case with a tribunal of fixed membership. Such a tribunal not only utilises members inefficiently in straightforward cases, but is also more susceptible to ordinary administrative difficulties such as illness and absence of members. Allied to the benefits of flexibility is the availability of presidential members of the AAT where the legal issues are of sufficient complexity or the principles involved are of sufficient general importance. To the extent that authoritative treatment of such cases within the AAT makes it less likely that they will be taken further on appeal, the benefits to all parties concerned including those whose cases are pending, are apparent. Of particular significance is the experience which the AAT has gained in the review of discretionary decision making.

152. The Council has noted the doubts expressed by some Chairmen and Board members (see para. 138), but is nevertheless confident that the preliminary conference and directions hearing procedures could be used to advantage in taxation matters as in other jurisdictions of the AAT. In particular, the Council has in mind their usefulness in narrowing the range of issues in dispute in areas involving broad discretionary powers. The preliminary conference could prove particularly useful to unrepresented taxpayers. Such a conference would assist a taxpayer's preparation for the full hearing by informing him of the case he has to meet and how the hearing will be conducted.

153. The nationally co-ordinated organisation of the AAT permits to a greater extent the minimisation of differences in substantive and procedural approaches taken throughout the country. This factor is assisted by the varied membership of the Tribunal. Perhaps more importantly in the Council's view, it helps ensure that there is little difference between regions in the time taken for a case to be heard by the Tribunal.

154. The desirability of a transfer of jurisdiction to the AAT is also indicated by two matters affecting the Boards. First, there is a substantial body of criticism of the Boards. In the Council's opinion, such evidence of disapproval of the institution of the Boards, whether in the view of the Commissioner and the Chairmen of the Boards it is justified or not, is worthy of concern. Dissatisfaction in relation to one aspect of the taxation system is unlikely to foster the individual's sense of social obligation which is basic to the operation

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of the system as a whole. It is important that the escape valve function of review is effective.

155. Second, although it is not possible for the Council to predict the rate of increase in the number of cases for review, the size of the present backlog of cases suggests that additional Boards may soon need to be appointed.

156. For the reasons summarised here and expressed in more detail above, the Council believes that it would be appropriate to make decisions which are now the subject of review by the Boards the subject of review by the AAT. (The proposed objection and appeal process is set out in Figure 2, p. 36.). In reaching this conclusion, the Council notes that it is consistent with the views of the Bland Committee expressed in 1973. That Committee considered that taxation matters were an appropriate jurisdiction for the general tribunal it had in mind and recommended accordingly. (See Bland Report, paras 127, 132 and 187 and Appendix E.)

157. A consequence of the transfer of jurisdiction to the AAT would be that appeals would lie, as with all other jurisdictions of the AAT, to the Federal Court of Australia. As appeals from the Boards presently lie to the State Supreme Courts, and thence to the Federal Court, the jurisdiction of State Supreme Courts in respect of appeals from Boards of Review would be eliminated. This reduction in the number of appeal stages was given by some State Councils of the Taxation Institute of Australia as one reason for preferring the transfer of the Boards' jurisdiction to the AAT.

158. As appeals from the AAT to the Federal Court may be made only on questions of law, appeals would no longer be by way of rehearing the matter, as presently occurs in hearings before the Supreme Courts. While such a consequence clearly limits the issues which can be raised on appeal, it will assist comprehensive treatment of issues before the AAT. As was explained by several Board Chairmen and members, the Boards presently feel constrained to exclude evidence which would not be admissible on a rehearing by a Court. That the AAT is not so limited is seen by the Council as likely to enhance the ability of the AAT to deal with taxation matters in a manner consistent with the original role envisaged for the Boards. Moreover, as section 45 of the AAT Act provides that the AAT may refer a question of law to the Federal Court of Australia and that, if it does so, the jurisdiction will be exercised by that Court constituted as a Full Court, there would be a ready means of having important questions of law specifically determined without the necessity of there being lengthy lower court or tribunal proceedings.

159. Administrative Needs. It can be expected, having regard to the numbers of cases transmitted to the Boards in recent years and the present downward trend in numbers of objections, that if jurisdiction were transferred to the AAT, at least some 450 cases annually would need to be handled by that Tribunal in the foreseeable future in addition to overcoming the present backlog which averages eighteen month's worth for the three Boards of Review.

160. Consideration would no doubt be given to providing the AAT with expertise by the appointment of existing Chairmen and members of the Boards, whose present salaries are on a level comparable to senior members of the AAT.

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161. The appointment of an additional presidential member (either a Judge of the Federal Court or a Deputy President) with a high level of experience in tax matters to supervise the tax jurisdiction and to supplement the tax experience of several existing presidential members would be desirable. In order to overcome the backlog, it would also be desirable to appoint an additional Deputy President or senior member either to undertake taxation reviews, or to allow existing members of the AAT who have taxation experience to undertake the reviews.

162. Additional registry staff would not be required if the staff of the Boards were transferred to the AAT. However, the appointment of appropriate staff for members would be necessary.

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PART V: RECOMMENDATIONS

Jurisdiction to Review Taxation Decisions163. The Council has in Part IV considered the desirability of transferring the jurisdiction presently exercised by the Boards of Review to the AAT and given its reasons for preferring that course of action.

RECOMMENDATION 1The existing jurisdiction of the Boards of Review to review decisions made under taxation legislation should be vested in the Administrative Appeals Tribunal.

164. In so recommending, it is not intended to indicate that present members of the Boards could not appropriately be appointed as members of the AAT, or that former officers of the ATO would not be suitable. In the Council's view, the necessary appearance of independence in relation to such members would be preserved, initially in their appointment by the Attorney-General, and also in their selection for particular cases by the President of the Tribunal.

Access to the AAT165. The jurisdiction of the Boards of Review to deal with a particular dispute now commences when cases are referred to them by the Commissioner. It is not possible for an objecting taxpayer to make his own application to a Board, but it is open to him to require the Commissioner to refer the case within a specified time.

166. In the majority of jurisdictions of the AAT, persons affected by a decision make their own applications to the Tribunal. In a few jurisdictions, review is initiated by other means, but usually following a request by the person concerned. In some of the existing high-volume jurisdictions, reconsideration by the original decision maker, or some other body, is a pre-condition to the making of an application for review by the AAT. This requirement serves the dual purpose of allowing the decision to be reconsidered thoroughly at a higher level and of reducing the number of cases being brought to the AAT.

167. The Council considers that, with the vesting of a taxation jurisdiction in the AAT, the present arrangements whereby cases are referred for review by the Commissioner should be retained. In so recommending, the Council is mindful of the very large numbers of objections and requests for references. If applications for review were permitted to be made by taxpayers after disallowance of an objection, neither the AAT nor the ATO would have the resources to cope with the administrative demands engendered by the many thousands of applications. Although the provision of direct access to the AAT for applicants in taxation matters is a desirable objective, the Council would not wish its present impracticability to delay implementation of the Council's main recommendations. The Council intends, however, to consider the question again along with other matters which it has indicated elsewhere in this Report warrant consideration in the future. For the interim, however, the Council notes that the present arrangements do provide the Commissioner with the opportunity for reconsideration and in this respect they parallel the requirements referred to above which operate in other large volume jurisdictions of the AAT.

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168. Council has also noted that the existing provisions of section 189 of the Income Tax Assessment Act are designed to enable taxpayers who so wish to seek expedition of their cases. Unless the Commissioner requires additional information from a taxpayer, he is obliged to refer an objection to a Board or Court within sixty days of receiving a written request for referral under that section. It is Council's view that consideration may need to be given in the future to the practical operation of the section to ensure that this procedure does not unnecessarily delay the reference of cases to the AAT.

RECOMMENDATION 2Existing legislation permitting a taxpayer to request the Commissioner to refer his objection to a Board of Review should be amended to provide that the taxpayer may request the Commissioner to refer his objection to the Administrative Appeals Tribunal.

Statements of Reasons Under Sections 28 and 37169. Section 28 of the AAT Act gives a person entitled to apply to the Tribunal for a review of a decision the right to request the decision maker to furnish a statement in writing setting out the finding on material questions of fact, referring to the evidence or other material on which those findings were based, and giving the reasons for the decision. The decision maker must furnish the statement within twenty eight days after having received the request. Under section 37 of the AAT Act such a statement, together with all relevant documents in the hands of the decision maker, must be supplied within twenty eight days after the decision maker has received notice of an application for review of the decision. In the Council's view, the time scale in which the latter provision operates is not appropriate to the arrangements which the Council has proposed in Recommendation 1. The Council notes that a similar statement is required under regulation 35 to be supplied by the Commissioner at the time a decision is referred to a Board of Review. The Council therefore proposes that, in the taxation jurisdiction of the AAT, the requirement as to time referred to in section 37 should be altered to accord with the present arrangement under regulation 35. Thus, the statement and documents required under section 37 should be forwarded to the Tribunal when the case is referred.

170. A difference between the requirements of section 37 and regulation 35 exists in the degree of substantiality required in the statement of reasons for the decision. The Council has considered whether the more detailed requirements of section 37 would be inappropriate in taxation matters. Council is aware that the preparation of section 37 statements can be a burdensome exercise. The requirement would impose a greater burden on the ATO than is presently the case, but the Council does not consider that the additional work involved would be unduly onerous having regard to the fact that the matter would by that time have been fully investigated and prepared for reference in the ordinary course of events. Moreover, the number of statements required is not great when compared with that handled satisfactorily by the Department of Social Security. A further objection would be that the requirement would unfairly assist the taxpayer in the conduct of his case. In the light, however, of the Commissioner's observations that 'taxpayers will be adequately informed if they care to ask', the significance of this objection falls away. The Council sees great advantage in the formalisation of such explanations, not only for the assistance that it will give the Tribunal but for the way in which it will help to define the issues to be treated at the hearing.

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171. In respect of the requirements under section 28, however, the Council does not believe those requirements would be workable in a taxation jurisdiction of the AAT. Its conclusion is based on the expected high volume of cases and the potentially heavy burden a large number of requests for reasons would place on the ATO. Although the Council is confident that the provision of a statement of reasons under section 37, amended as proposed, would afford a taxpayer adequate time in which to prepare his case, it is aware of the benefits which would be lost by the exclusion of section 28 in taxation matters. As the provision of a full statement of reasons at an early stage may often obviate the need for subsequent review proceedings, the Council intends to consider in the future the circumstances in which this provision could be given operation.

RECOMMENDATION 3The legislation conferring jurisdiction on the Administrative Appeals Tribunal should provide that section 28 of the Administrative Appeals Tribunal Act 1975 does not apply in relation to AAT review of taxation decisions formerly reviewable by Boards of Review; and should amend the operation of section 37 in relation to those taxation decisions such that the Commissioner shall lodge with the Tribunal the statement and documents referred to in that section at the time the case is referred to the Tribunal.

Public Hearings172. The view was expressed in several submissions that taxation review hearings should continue to be held in camera, the privacy of the taxpayer being an important matter. In practical terms this is not significant in the present context. Although AAT hearings are required generally to be in public (sub-s.35(1) of the AAT Act) the Tribunal may, by order, direct that a hearing or part of a hearing be held in private (para. 35(2)(a)) and may make other orders protecting the confidentiality of evidence given before the Tribunal. Should any request be made for such an order the Tribunal is required to pay due regard to any reasons given to it in relation to the request. The Council notes also an apparent anomaly in the present policy whereby taxation appeals referred to a Supreme Court are held in open court. This is, no doubt, in recognition of the principle that the administration of justice is a matter of public interest and concern. In the Council's view, that principle is equally important in the sphere of administrative review and it sees its recognition in taxation matters before Courts as detracting from the significance accorded in camera hearings before the Boards. As the Council has noted earlier in this Report, taxation is an area in which the public interest is of considerable importance. It is, perhaps, questionable whether secrecy of the kind under consideration gives proper recognition to that interest. The information before the Council does not give any clear indication as to whether taxpayers generally would prefer review hearings to be held in private or in public. The fact that few taxpayers other than those seeking public exposure now request public hearings before the Boards is significant, but may be explained by the fact that most taxpayers simply have no reason to request a public hearing, being concerned only to have their case heard.

173. The Council has decided, therefore, that it should not recommend any alteration to the operation of section 35 of the AAT Act in the proposed jurisdiction. Sub-section (3) of that section states as a general principle the desirability of holding hearings of proceedings before the Tribunal in public.

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The Council believes that this principle applies equally in hearings concerning taxation matters as it does in other jurisdictions where matters of a private and personal nature are considered. Although the Tribunal is required to give expression to this principle, it is able, inter alia, to order that hearings are to be held in private and to this end must pay due regard to any reasons presented for this to be done. The Council thus believes that there is adequate protection for the individual taxpayer who wishes his affairs to be kept private, and that section 35 of the AAT Act is not inconsistent with the policy of taxation legislation.

174. In this context Council notes that in some countries comparable hearings are open to the public. In the United Kingdom, while hearings relating to income tax are held in camera, those involving indirect taxes are open. In the United States, all comparable taxation hearings are open to the public.

Time Limits and Amendment of Grounds of Objection175. The Council has considered two further matters which are significant because of the way in which they circumscribe the review process. Sections 185 and 187 of the Income Tax Assessment Act 1936 place strict time limits on the period in which a taxpayer may lodge an objection and request that it be referred for review (see paras 21, 23), and paragraph 190(a) of that Act limits the taxpayer to the grounds stated in his objection (see para. 21).

176. In the Council's view, these provisions have the effect of unnecessarily limiting the issues arising for review and are undesirable to the extent that they result in injustice to some taxpayers. The Council notes that a majority of those making submissions, including some Board Chairmen and members, saw a need for some relaxation of the present position and that recommendations along these lines were made earlier by the Taxation Review Committee (the Asprey Committee).

177. One submission to the Council referred to the complexity of the Act as a reason for extending the present period to ninety days within which objections must be lodged and requests for reference made. As this point was not made in other submissions, the Council has concluded that, while it may pose difficulties in some cases, the present sixty-day period is generally adequate. The Council considers that any genuine difficulties in complying with this time limit could be met satisfactorily by enabling extensions to be granted by the Commissioner, whose discretion would be reviewable by the AAT.

178. In recommending provision for extension of these time limits, the Council is concerned that its recommendations should not have the effect of frustrating the orderly collection of taxes. For this reason it proposes that extensions of time should only be granted in exceptional cases where the taxpayer not only has a reasonable excuse but also would suffer undue hardship if time were not extended. In the Council's view, such restrictions, together with the incentive for prompt payment afforded by liability to penalty interest on unpaid tax, would negate the likelihood of abuse by taxpayers.

RECOMMENDATION 4Sections 185 and 187 of the Income Tax Assessment Act 1936 should be amended to enable the Commissioner of Taxation in his discretion to grant an extension of time for lodgment of objections and requests for reference or

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appeal on the grounds that the taxpayer has a reasonable excuse for his failure to lodge an objection or request a reference within time and would suffer undue hardship if time were not extended; and to provide that a refusal by the Commissioner to grant an extension of time should be reviewable by the Administrative Appeals Tribunal.

179. While it is obviously desirable to reduce as far as possible the administrative burdens placed on the ATO, care should be taken to ensure that administrative convenience does not undermine the intended role of administrative review in the taxation area. As the Council has noted previously (see para. 53) the Boards were originally envisaged as an informal and inexpensive forum in which taxpayers themselves could appear. It is perhaps unfair to expect that all taxpayers are able to appreciate the full range of provisions supporting an assessment, not all of which are necessarily adverted to in the adjustment assessment sheet accompanying a notice but which may be relied on by the Commissioner at a later stage. For the reasons noted earlier in this Report (see paras 132-3) the Council believes that it should be possible for the taxpayer to amend his grounds of objection in appropriate cases. As the number of cases in which the need to amend is likely to arise will be small, the Council believes that this important objective can be achieved at little cost in terms of administrative burden. Particularly in cases where the need to amend arises from the Commissioner relying on a provision different from that originally relied on, it can be expected that the investigation and preparation that gave rise to the change would generally be adequate to meet new arguments which the taxpayer may wish to put. The principles on which courts have permitted amendments to pleadings in other areas are directly apposite to the taxation area. The Council therefore proposes that the AAT should be given a discretion to permit a taxpayer to amend his grounds of objection. It does not consider it necessary or desirable to prescribe the circumstances in which that discretion may be exercised since the legislative intention expressed in the requirement that taxpayers should otherwise be limited to the grounds of their objection will afford the Tribunal adequate guidance in the exercise of its discretion.

RECOMMENDATION 5Paragraph 190(a) of the Income Tax Assessment Act 1936 should be amended to provide that upon a reference to the Administrative Appeals Tribunal, the taxpayer shall be limited to the grounds stated in his objection unless the Tribunal otherwise orders.

Stay of Decisions180. The Council has considered the operation of section 41 of the AAT Act in the light of section 201 of the Income Tax Assessment Act 1936 which provides that tax assessed remains payable notwithstanding a pending request for reference or appeal. Section 41 empowers the Tribunal in its discretion to stay the operation of a decision under review. This provision is inconsistent with section 201 and the Council considers that section 41 should not apply to taxation cases. The purpose of section 41, which is directed towards cases of hardship, is already met by section 206 of the Income Tax Assessment Act which enables the Commissioner, in appropriate cases, to grant an extension of time for payment of tax or to accept payment by instalments. In respect of the limited jurisdiction of the Boards under other Acts, section 41 also ought not to

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apply. In these cases, section 41 ought not to override the strong legislative intent that the tax be paid when it falls due.

RECOMMENDATION 6Section 41 of the Administrative Appeals Tribunal Act 1975 should not apply to taxation decisions formerly reviewable by Boards of Review which are reviewable by the Administrative Appeals Tribunal.

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APPENDIX ASubmissions on Discussion Paper

ORGANISATIONSAustralian Society of AccountantsAustralian Taxation OfficeInstitute of Chartered Accountants in AustraliaLaw Society of New South WalesNew South Wales Bar AssociationTaxation Institute of AustraliaVictorian Bar CouncilWestern Australian Law Society

BOARDS OF REVIEWMr K.P. Brady, Chairman, No. 2 BoardMr M.B. Hogan, Chairman, No. 3 BoardMr H.P. Stevens, Chairman, No. 1 BoardDr G.W. Beck, Member, No. 3 BoardDr P. Gerber, Member, No. 3 BoardMr J.E. Stewart, Member, No. 2 BoardMr LC. Voumard, Member, No. 2 Board

OTHERSHon. K.W. Asprey C.M.G., Q.C.Mr J.L Burke, formerly Chairman, No. 1 BoardMr A. Donovan, formerly Chairman, No. 2 BoardMr L.F. Fairleigh Q.C., formerly Member, No. 1 BoardMr P.J. Lanigan, formerly Second Commissioner of TaxationMr W.J. O'Reilly, C.B., O.BE., Commissioner of TaxationMr A.P. Webb Q.C., formerly Member, No. 2 Board

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