Tribunal in error to draw new factual conclusion on review of private ruling

It is well established that in an appeal or review proceeding concerning a private ruling made by the Commissioner of Taxation, the Federal Court or Administrative Appeals Tribunal is constrained to reviewing the Commissioner’s legal conclusions. It is no part of the appeal or review task for the Court or Tribunal to consider the correctness of the facts stated and ruled upon in the ruling. But what of a ‘secondary’ finding of fact which is available as a conclusion from primary facts set out in the ruling? 

In Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 the tribunal had made a finding that the taxpayer was ‘carrying on a business’. This had not been part of the Commissioner’s ruling but was a conclusion the Tribunal reached having regard to four primary facts (which were part of the Commissioner’s ruling). The Court (Logan J) found that, the question whether an entity was carrying on a business being a question of fact, it was impermissible for the Tribunal to reach that conclusion as part of its review of the objection decision.

Rosgoe Pty Ltd (Rosgoe) was the trustee of a discretionary trust. The trust was controlled by two individuals who had a history of property development. It sought a private ruling from the Commissioner in respect of the sale of certain property. Rosgoe had acquired the property to develop it in a joint venture with another entity. However it had abandoned the project and sold the property at a profit.  Before doing so, Rosgoe had obtained a development approval in respect of the property.

Rosgoe asked the Commissioner to rule on two questions, namely:

  1. whether the sale of the property was a realisation of a capital asset and taxable under the CGT provisions; and
  2. if so, whether certain GST consequences attached to the sale.

The Commissioner answered ‘No’ to the first question and did not need to answer the second. The Commissioner gave reasons in support of the ruling. By his reasons the Commissioner found that the property was not trading stock but was a capital asset purchased with the intention of sale at a profit: [6]-[7].

The Commissioner disallowed an objection by the taxpayer. The taxpayer sought review of the objection decision in the Administrative Appeals Tribunal.  The Tribunal affirmed the private ruling, but on the basis of a finding that Rosgoe sold the property in the course of carrying out a business: [9]. The Tribunal reached this finding having regard to four primary facts stated in the Commissioner’s ruling: [10]. The Tribunal made a further, alternative finding of fact. It found that even if the property was not sold in the course of carrying on a business of property development, Rosgoe had from the outset had a profit-making purpose in respect of it: [11].

The Court found that, in engaging in fact finding in this way, the Tribunal had fallen into error. The conclusion that the activities of Rosgoe amounted to the carrying out of a business was a finding of fact: [16]. It is well established that the task of the Tribunal in a review of a decision on an objection against a private ruling is confined to a review of the correctness of the legal conclusions reached by the Commissioner on the facts stated in the ruling and may not review the correctness of the facts stated in the ruling: Commissioner of Taxation v McMahon [1997] FCA 1087Cooperative Bulk Handling Ltd v Commissioner of Taxation [2010] FCA 508. The same applies to a Court in an appeal against an objection decision.

The Court found

On the Commissioner’s description of the facts which constituted the arrangement, the present was a case where property was acquired not for sale at a profit but rather for the carrying out of a profit-making scheme which later came to be abandoned. [25]

It followed that the Commissioner (and the Tribunal) should have ruled that the profit on sale of the property was not ordinary income and the arrangement involved the disposal of a capital asset to which the capital gains tax regime would apply: [26]. There having been no answer to the taxpayer’s second question on the private ruling (relating to GST), the Court remitted that part of the matter back to the Tribunal.

The decision evokes the difficult boundary between questions of fact and questions of law. It may be accepted that the meaning of a non-legal expression such as ‘carrying on a business’ is a question of fact: Collector of Customs v Pozzolanic (1993) 43 FCR 280 at [23]. Nevertheless it is difficult to see the difference in principle between concluding on primary facts that a taxpayer is ‘carrying on a business’ and concluding that at the time of sale of the property the taxpayer had abandoned an earlier profit-making scheme. The difference seems only to be that the latter conclusion expressly formed part of the facts recited in Commissioner’s ruling whereas the former did not.

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