The Burden of Proof in Taxation Disputes: Does Section 170 or Part IVA of the Income Tax Assessment Act 1936 (Cth) Offend the Rule of Law?

Published date01 March 2024
DOIhttp://doi.org/10.1177/0067205X231203437
AuthorMax Bruce
Date01 March 2024
Subject MatterArticles
Article
Federal Law Review
2024, Vol. 52(1) 3450
© The Author(s) 2023
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DOI: 10.1177/0067205X231203437
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The Burden of Proof in Taxation
Disputes: Does Section 170 or Part
IVA of the Income Tax Assessment
Act 1936 (Cth) Offend the Rule of
Law?
Max Bruce*
Abstract
For the purposes of assessing tax, section 170 of the Income Tax Assessment Act 1936 (Cth) permits
the Commissioner to determine that the taxpayer has committed fraud or evasion. The taxpayer
then bears the onus of showing that they have not. There is no requirement that the Commissioner
show that such determination is correct, nor to support it with evidence. The Commissioner may, if
they wish, do nothing more than put the taxpayer to proof by tendering their assessment as
evidence. This article sets out in detail how the reversal of the onus of proof in cases arising from the
Commissioners determination of fraud or evasion offends the principle of procedural fairness, as
well as the principles of certainty and prospectivity. This paper also extends that analysis to disputes
arising out of the commissioners determination of tax avoidance under Part IVA of the Income Tax
Assessment Act 1936 (Cth). This paper further considers whether general administrative law
principles, in particular the Briginshaw Principle, may obviate some of the concerns regarding the
reversal of the onus of proof. It is contended that the reversal of the onus of proof in cases arising
out of the Commissioners determination of fraud or evasion under section 170 and tax avoi dance
under Part IVA signif‌icantly offend fundamental tenets of the rule of law, namely, the principles of
procedural fairness, certainty and prospectivity. It is further contended that requiring the Com-
missioner to adduce evidence to support the opinion or allowing the Commissioners determi-
nation to be judicially examined would obviate the offence to the rule of law.
Accepted 4 May 2023
* Dr Bruce is a Lecturer in Taxation Law, College of Business and Economics, The Australian National University; Barrister
and Solicitor of the Supreme Court of South Australia and of the High Court of Australia; Fellow of the Tax Institute.
Contact max.bruce@anu.edu.au.
I Introduction
In October of 2021, the House of Representatives Standing Committee on Tax and Revenue re-
leased its Report on the 201819 Commissioner of Taxation Annual Report.
1
The Committees
Report recommended, inter alia, that the onus of proof should lie with the Commissioner in
establishing fraud or evasion for the purpose of assessing tax under section 170 of the Income Tax
Assessment Act 1936 (Cth); as indeed had been recommended in the Committees previous
2015 Report on Tax Disputes.
2
These reports argue that placing the burden of proof on the taxpayer in such circumstances signif‌icantly
undermines the application of the rule of law and, in particular, the principle of procedural fairness. While
there are a number of laws that place the onus of proof on the party defending a claim made against them,
and several justif‌ications given for this,
3
these reports suggest that the affront to the principle of procedural
fairness is particularly severe in respect of the Commissioners determination of fraud or evasion. Indeed,
practitioners in the f‌ield of taxation are habituated to the inequality of power inherent in the review process.
However, as Russell notes, were a candid description of the review process given to a lawyer or public
servant in any other area of public administration, the response would range from disbelief to outright horror
at the extent of the power imbalance in favour of the ATO.
4
This paper expands on the arguments advanced in the Committees reports and sets out in detail
how the reversal of the onus of proof in cases arising from the Commissioners determination of
fraud or evasion offends the principle of procedural fairness, as well as the principles of certainty
and prospectivity. This paper also extends that analysis to disputes arising out of the commissioners
determination of tax avoidance.
This paper further considers whether general administrative law principles, in particular the Bri-
ginshaw Principle, may obviate some of the concern s regarding the reversal of the onus of proof.
It is contended that the reversal of the onus of proof in cases arising out of the Commissionersde-
termination of fraud or evasion under section 170 and tax avoidance under Part IVA signif‌icantly offend
fundamental tenets of the rule of law, namely, the principles of procedural fairness, certainty and pro-
spectivity. It is furthercontended that requiring the Commissioner to adduce evidence to support the opinion
or allowing the Commissioners determination to be judicially examined would obviate the offence to the
rule of law.
II How the Burden of Proof Applies in Taxation Law Disputes
In criminal trials, the prosecution bears the burden of proof beyond all reasonable doubts of the accuseds
guilt. Whereas, in a civil claim, while the burden of proof on the balance of probabilities will generally lie
1. The Parliament of the Commonwealth of Australia House of Representatives Standing Committee on Tax and Revenue,
201819 Commissioner of Taxation Annual Report (Report, October 2021) (201819 Commissioner of Taxation Annual
Report).
2. The Parliament of the Commonwealth of Australia House of Representatives Standing Committee on Tax and Revenue,
TaxDisputes (Report, March 2015) (Tax Disputes); this was also reiterated in the Committees 2016 External Scrutiny of
the ATO (Report, April 2016), 2016 Annual Report of the Australian Taxation Off‌ice Performance Review 201516
(Report, March 2017), TaxpayerEngagement with the Tax System(Report, August 2018) and 2017 Annual Report of the
Australian Taxation Off‌iceFairness, functions and frameworksperformance review (Report, February 2019)
(Fairness, functions and frameworks).
3. The Australian Law Reform Commission, Traditional Rights and FreedomsEncroachments by Commonwealth Laws
(ALRC Interim Report 127, July 2015) (Traditional Rights and Freedoms).
4. David Russell, Submission 33 to House of Representatives Standing Committee on Tax and Revenue Inquiry Tax
Disputes(Written Submission, December 2014).
Bruce 35

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