We were warned in the 1970s. When tax cases came before the High Court then, the court ran a very socially damaging line, led by the then Chief Justice Garfield Barwick. The line was that it was up to the Parliament to specify tax liability with exactitude and if a taxpayer structured his or her affairs in a way that minimised tax, too bad, the taxpayer could avoid the tax. The barren fruit of this approach was Kerry Packer’s famous line that anyone who pays a cent of tax more than he has to is a fool. The tax-avoidance industry flourished. At the time one or two judges dissented, particularly Justice Lionel Murphy. Justice Murphy warned that if the court continued with this approach, Parliament would pass wider and wider tax laws with ever more discretion on the part of the Tax Office to ensure tax was not avoided. He warned that Parliament might have to enact laws that enabled the Tax Office to set whatever tax it wanted and to chase it down for as long as it took.
He was right, as we saw in the High Court last week.
The court ruled that provision in the Income Tax Assessment Act entitled the Tax Office to revisit tax assessments for an indefinite time in the future. The court said that the tax law did not have to be fair, just certain and final. The case was about a woman who said her income was $4470 in 1987. The Tax Office said she was liable to pay no tax. Years later the office changed its mind and disallowed a $10,000 deduction. The taxpayer objected saying there was a three-year limitation against reassessment. But the court sided with the Tax Office, saying the three-year limitation did not apply in this case because an assessment of zero liability to pay tax was no assessment at all.
The case illustrates