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LexisNexis Australian Tax Law Bulletin 3-6
"Constitutional judicial review of an invalid fraud and evasion opinion: targeted, direct and specific"

Introduction
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Increasingly, tax advisors will be faced with the now not unusual scenario that they represent a citizen client who has been issued, or is about to be issued, with an amended assessment by the Commissioner of Taxation (the Commissioner) where that amended assessment will be issued out of time of the 2 year or 4 year limit given to the Commissioner to amend assessments, purportedly pursuant to the “fraud and evasion power” contained in item 5 of s 170(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). In order to invoke the fraud and evasion power, the Commissioner must form an opinion, i.e. his opinion, that there must have been “fraud” or “evasion” infecting the particular assessment (the F&E Opinion). If that F&E Opinion is jurisdictionally valid then the assessment will prima facie be valid. If that F&E Opinion is jurisdictionally invalid, there will be no statutory power to issue the assessment.

Applicable to the following situation:
  • Taxpayer is under audit or has had an audit completed;
  • Commissioner is considering issuing or has issued an amended assessment beyond the 2 year or 4 year time limit; and
  • The Commissioner of Taxation (the ATO) has issued an amended assessment using the "fraud and evasion" power.

What can be done to address the situation?
  • The fraud and evasion opinion may be invalid at law.
  • The taxpayer wishes to dispute the fraud and evasion opinion.
  • Judicial review proceedings may be able to be filed which have the fraud and evasion opinion declared invalid.
  • If the fraud and evasion opinion is invalid, then the amended assessment and consequential debt may be invalid.
  • However, if the fraud and evasion opinion is valid, the amended assessment would need to be contested pursuant to a Part IVC appeal.

How is the situation addressed?
  • If appropriate, pleadings to commence Federal Court proceedings would need to be drafted and filed in the Federal Court of Australia. 

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