30 November 2018
In a recent case of EE&C Pty Ltd as Trustee for the Tarcisio Cremasco Family Trust and FCT  AATA 4093 heard by the Administrative Appeals Tribunal (the Tribunal), it was decided that the terms of a Deed of Settlement entered into by the taxpayer and the Commissioner was intended to resolve the dispute once and for all and did not allow for future taxpayer objections, even though the taxpayer later uncovered documentation calling into question the assessments. This highlights the need to take extra care with what is agreed with Commissioner as part of a settlement of disputes as there may not be an ability to object later, even if more information or alternative reasoning comes to light.
The taxpayer in this case was the trustee of a family trust. Between 2007 and 2011, the taxpayer and the Commissioner were in dispute regarding the calculation of the trustee’s taxable income for the 1999 to 2005 income years, including the efficacy of distributions made to certain entities. The Commissioner issued notices of assessment for the 2002, 2003 and 2005 income years, to which the taxpayer objected.
The Commissioner disallowed the objections and the taxpayer applied to the Tribunal for a review of the objection decisions. Following negotiations from late 2009 to early 2011, the taxpayer and the Commissioner reached an in-principle settlement of their dispute and signed a Minute of Terms of Agreement. In March 2011, the taxpayer and the Commissioner entered into a Deed of Settlement and the Tribunal set aside the objections under review and substituted other decisions based on what was agreed in the Deed of Settlement. The taxpayer agreed in both the Minute of Terms of Agreement and the Deed of Settlement that two named beneficiaries were not actually within the class of potential beneficiaries of the trust.
Following the issue of original income tax assessments, amended assessments and shortfall penalties to the taxpayer in accordance with the Deed of Settlement covering seven income years, the taxpayer lodged documents described as "objections", after discovering documentation supporting changes to the income class of beneficiaries of the trust to include the two named beneficiaries which were excluded as part of the agreed settlement. The taxpayer was effectively attempting to re-open the matter following the discovery of this documentation, as the taxpayer was not of the belief that they had signed away such rights by entering into the Deed of Settlement. The Commissioner declined to make a decision in respect of those documents on the basis that they were not valid objections.
The taxpayer then applied to the Tribunal to review decisions on two bases:
- in respect of four years of income (1999, 2000, 2001 and 2004 – the Original Assessments), that the Commissioner was deemed to have made a decision following the taxpayer’s service of notice of "objection" to which the Commissioner did not respond; and
- in respect of the remaining three years (2002, 2003 and 2005 - the Amended Assessments), that the Commissioner had refused the time within which it could lodge objections by not regarding the objections as being valid.
Relevant terms of the Deed of Settlement
Importantly, the terms of the Deed of Settlement included the following:
- the taxpayer acknowledged and agreed that it would not:
- make or bring any application, claim or proceeding in relation to the issues agreed as part of the settlement, or of related decisions, except in relation to the Commissioner’s obligations under the Deed; or
- seek any review of the issues agreed as part of the settlement, or of related decisions, under the Administrative Decisions (Judicial Review) Act 1977 or of administrative law generally, or any other law;
- both parties agreed that the Deed of Settlement constituted the entire agreement and undertaking between them in relation to the subject matter; and
- it was agreed that no amendment or variation of the Deed of Settlement would be binding on any party unless made in writing and executed by all parties.
Such terms are standard terms in Deeds of Settlement entered into with the Commissioner for resolutions of this nature.
Deputy President Forgie of the Tribunal agreed with the Commissioner and found that:
- a taxpayer could voluntarily forego a right to exercise rights given by Parliament to seek review or to lodge an appeal, and the substance of the Deed of Settlement, whether read alone or in the context of the Minute of Terms of Agreement and/or against the background of the dispute between the taxpayer and the Commissioner, led to the conclusion that the parties agreed to resolve their dispute once and for all;
- while the taxpayer may have had a misapprehension that it could object to all or any of the assessments that the Commissioner undertook to issue after the Tribunal made its consent decisions, this was a mistake that the Commissioner was not aware of and could not reasonably in the circumstances have been aware of and therefore there was no reason to set aside the Deed of Settlement;
- as the taxpayer bound itself not to object to the Original Assessments and the penalty assessments, there could be no objection and no obligation on the Commissioner to decide the objection, and therefore the Commissioner could not be deemed to have made an objection decision. Without an objection decision, there was no basis for an application for a Tribunal review; and
- similarly for the Amended Assessments, the taxpayer could not lodge an objection to the Amended Assessments issued in accordance with the terms of the Deed of Settlement. Also, as the alterations or amendments in the Amended Assessments only gave effect to the Tribunal’s earlier consent decisions, the Tribunal could not review those alterations or additions as the Tribunal had already exhausted its power to review them.
This case highlights the need to be extra vigilant in terms of what is agreed with the Commissioner in settling disputes and the need to be comfortable with what is finally agreed as there may not be an opportunity to revisit assessments that flow from the settlement.
Please contact us if you are considering entering into a settlement with the ATO and are unsure of, or wish to discuss, the implications it may have on assessments (including penalties).