Automated processes: When does the Commissioner of Taxation make a ‘decision'?

The recent Federal Court decision of Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79 considered whether a letter from the Australian Taxation Office (ATO) amounted to a ‘decision’ by the Commissioner of Taxation (Commissioner). 

This case clearly raises issues for taxpayers who are dealing with the ATO as it appears that taxpayers may not be able to rely in every case on written correspondence issued by the ATO purporting to convey a ‘decision’.

The taxpayer applied for remission of a general Interest charge (GIC) and to enter into a payment arrangement for taxation liabilities of $1.17 million. An ATO officer and delegate of the Commissioner, entered information into a computer-based template that automatically generated a letter (the ATO Letter) which was sent to the taxpayer. The ATO Letter, headed “Payment arrangement for your Income Tax Account debt”, read:

Thank you for your recent promise to pay your outstanding account. We agree to accept a lump sum payment of $839,115.43 on or by 30 January 2015.

This payout figure is inclusive of an estimated general interest charge (GIC) amount calculated to 30 January 2015. Amounts of GIC are tax deductible in the year in which they are incurred. 

The taxpayer argued that the ATO Letter was a ‘decision’ by the Commissioner to remit GIC up to the date of the letter if the lump sum payment was made. The taxpayer and his bank relied on the ATO Letter to acquire finance for the lump sum payment which was made on the agreed date. 

The Commissioner argued his intention was that the primary taxation liability was required to be paid in full and he would consider the taxpayer’s request for remission of GIC.  In his evidence, the ATO officer said he had never intended the letter to include the phrase “this payout figure is inclusive of an estimated general interest charge…”. File notes of telephone conversations with the taxpayer supported this intention prior to the ATO Letter being prepared together with ATO’s ‘Statements of Account’ issued in the months following which showed GIC continuing to accrue.

The Full Federal Court, by majority, held the ATO Letter did not amount to a valid ‘decision’ made by the Commissioner.

Although the Court’s decision may be perceived as unfair given the Commissioner could go back on what was said in the ATO Letter, the Court held that because the ATO officer did not undertake the necessary mental process in reaching the decision to remit the GIC, the ATO Letter did not amount to a valid decision of the Commissioner.  

The court also made some interesting commentary on automation, with the minority opinion observing the artificiality of the majority judgement that effectively allows the ATO to disregard part of the ATO Letter (the GIC remission) as not a decision of the Commissioner and the other part (the payment arrangement) to be regarded as a binding decision.

To discuss this article, or for any further information about the resolution of tax disputes please contact:

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal