The Commissioner's Discretion

22.2. A number of submissions have been received by the Committee which relate to certain powers which the Act vests in the Commissioner by some such language as enables him to make an assessment where he is ‘of the opinion’ or ‘is satisfied’ that a certain state of affairs exists. These may be conveniently referred to as the Commissioner's ‘discretionary powers’.

22.3. The tenor of these submissions is that, whenever possible, the use of a discretion in the Commissioner should be removed and liability to tax should be determined upon clearly defined criteria; that a Court should be able, in the same way as a Board of Review, to review the exercise by the Commissioner of a discretionary power, and that, where the Commissioner exercises his discretion, at the request of the taxpayer he should within some stipulated time furnish a statement containing his reasons for the exercise of the discretion.

22.4. Submissions have also been received to the effect that a system of advance bulletins should be set up indicating the matters which the Commissioner would take into account in the exercise of his discretion. These and a number of related matters are discussed below and certain recommendations made.

22.5. It must be at once conceded that the ideal for all fiscal laws should be certainty so that the taxpayer can discern from them the precise limits of his liability. An examination of the legislation of many countries—Australia is by no means unique in this regard—reveals that in many respects this goal has not been achieved. The failure to achieve simplicity and precision in every aspect of a taxation statute is readily understandable. Tax is levied over the whole community and upon all manner of persons and bodies. The fundamental basis of its imposition is the ability of each to pay, a difficult objective to achieve in view of the infinite variety of circumstances which attends even those with comparable grades of income. When the sources of income which range so widely have to be taken into account, the problems confronting attempts to achieve certainty in a law, which must at one and the same time have a general application and also as far as possible aim at equality of burden for each taxpayer according to his particular situation, are compounded. This will be recognised by anyone who attempts to reduce a taxation concept into statutory terms.

22.6. As all would readily agree, individual legislative treatment is an impossibility. The only practical means, on the one hand, of coping with the cases of hardship and of providing an equitable result for the inevitable departure from the norm so that the Revenue should not obtain more than in all fairness it is entitled to and, on the other, of ensuring that at the same time the taxpayer should not, at the expense of his fellow

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taxpayers, escape payment of his just liabilities, in many instances is by the exercise of a discretionary judgment to reach the solution called for by the particular circumstances of the case. The possession of a discretion by the Commissioner does not mean that he is completely at large in its exercise. It is not his private opinion that he is to express. He must act according to law and reason and to the justice of the case and not arbitrarily or capriciously or upon inadmissible or irrelevant grounds.

22.7. Another obstacle to simplicity and certainty in taxation legislation is the ingenuity and complexity of schemes which are evolved for the purpose of tax avoidance. By the use of documents and the adoption of procedures to which the Courts are impelled to give an operation according to their legal effect, it has become a not too difficult matter for some who have access to highly skilled advice to avoid a situation which the statute intended should be either taxable or taxable upon a higher scale. Some reference to this has been made in Chapter 11 (paragraphs 11.5–11.6) in dealing with the subject of income-splitting. The vesting in the Commissioner of powers of discretion, opinion, satisfaction and determination in this field is regarded by the Committee as a more satisfactory alternative to both the Revenue and the taxpayer than lengthy and complex provisions which can themselves be infected with the vice of uncertainty. It should not be overlooked that a power of this kind enables the Commissioner to give just recognition to transactions which bear the stamp of a genuine ordering of affairs and to separate them from those of an artificial nature designed to shelter their real purpose of tax avoidance. As both types of transaction frequently follow so closely the same path, the task of framing a definition which will include one without excluding the other usually presents insuperable obstacles for the draftsman.

22.8. It is admitted that in view of the number of cases arising the Commissioner's discretions must be exercised on his behalf by his officers who have delegated powers. But the Committee is informed that there are procedures established within the Department to ensure that, so far as possible, like treatment in the exercise of discretions is given to all taxpayers.

22.9. Whenever the law gives a discretion to the Commissioner, it should at the same time indicate the principle to which the Commissioner is to give effect in the exercise of the discretion: if the principle is not otherwise evident, it should be possible to infer it from any guidelines included in the section giving the discretion.

22.10. Accordingly, whilst the Committee has a definite preference for certainty in a fiscal statute it is not a sound practical measure to remove from the Commisioner's jurisdiction all the discretionary powers which he possesses under the Act. Where it is appropriate so to do, it would be an advantage for guidelines to be inserted in the Act to indicate the matters to which regard should be paid in the exercise of a discretion. But, as it is not possible to formulate guidelines to cover all the possible circumstances of every case, in the interests of the taxpayer as well as the Revenue, they should not be framed in the Act as the only relevant matters which the Commissioner should reasonably be entitled to take into account in the just exercise of the particular discretion vested in him. The proper exercise of a discretion necessarily involves a latitude of choice according to the particular circumstances of each individual case.

22.11. It has been submitted that whenever the Commissioner forms an opinion, makes a determinaton or exercises any like power, he should supply the taxpayer with the reasons or grounds upon which he has based it. As desirable as this might appear in theory, it would throw an enormous burden on to the administration and cause delay in the issue of assessments. Comparatively few of the Commissioner's actions of this nature are made the subject of challenge and, when an objection is made to an

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assessment, the Commissioner's reasons are placed before a Board of Review (see later) which in turn makes its own determination in reviewing the reasons of the Commissioner in light of the facts and the arguments of the taxpayer.

22.12. The Committee recommends that greater use be made of the procedure of the issue by the Commissioner of Public Information Bulletins setting forth the general guidelines which the Taxation Office usually takes into account in the exercise of powers of this nature in their different settings in the Act; but it should be made clear that such Bulletins are published for general information only. Because there will always be the exceptional case and because the facts of one case will rarely be on all fours with another, Public Information Bulletins should not be treated as evidentiary material before a Court or Board of Review.

22.13. The protection which the taxpayer has against any error made by the Commissioner in the exercise of these discretionary powers is the review and appellate provisions in the Act. Where the taxpayer is dissatisfied with a decision of the Commissioner disallowing, either in whole or in part, his objection to an assessment he may, within sixty days after service of the Commissioner's decision upon him, request the Commissioner to refer the decision to a Board of Review for review. If the request is accompanied by a fee of two dollars, the Commissioner is obliged, subject to his right to obtain further information from the taxpayer, to act in accordance with the request.