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?

A Burden of Proof and the Commissioner’s Determination of Fraud, Evasion or Tax Avoidance

There are two criminal charges that may be issued in cases of tax fraud or tax evasion, obtaining a financial advantage by deception ¹⁴ and conspiracy to defraud. ¹⁵ The maximum penalty for each offence being 10 years’ imprisonment or, more commonly, a civil penalty of up to $133,200. ¹⁶ These are serious criminal charges and, appropriately, the burden is on the Commonwealth to show beyond all reasonable doubts that the accused is guilty. ¹⁷

However, 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 and the taxpayer 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. ¹⁸ The Commissioner may, if they so wish, do nothing more than put the taxpayer to proof by tendering the assessment as evidence. ¹⁹

Indeed, the Commissioner is entitled to, and often does, rely on the taxpayer being unable to evidence their position. ²⁰

It is, however, important to note that the Commissioner may not allege a material fact without adducing evidence to establish it. ²¹ This is not, however, to say that the Commissioner must establish a prima facie case against the taxpayer. Indeed, the Commissioner is entitled to rely on evidence of exceedingly limited probative value; such that it is often a case of ‘We say it is, you prove it isn’t’. ²²

While the Commissioner must adduce evidence to set out the case against the taxpayer, the Commissioner need not prove that evidence, rather, it is for the taxpayer to disprove it.

Therefore, although the taxpayer need only prove error on the reduced balance of probabilities standard, it necessitates that the bar be set relatively low; such that the slightest balance of probative evidence in favour of the taxpayer shall be sufficient to refute the assessment. ²³ However, although the slightest balance of probative evidence in favour of the taxpayer will be sufficient, mere ‘speculation, conjecture or surmise from the bar table’ will not. ²⁴

Consequently, the evidentiary burden is significantly higher on the taxpayer. This is particularly concerning given the ATO’s practice of requiring supporting evidence to substantiate a taxpayer’s objection at the internal review stage ²⁵ and the increasingly prevalent practice in the Federal Court of summarily dismissing applications for judicial review that state grounds other than the narrow grounds identified in the case of Commissioner of Taxation v Futuris Corporation Limited (2012) 205 FCR 274. ²⁶

Accordingly, a taxpayer is often confined solely to Part IVC of the Taxation Administration Act 1953 (Cth) and, as Azzi notes, ‘[T]he purported assessment cannot be invalidated unless the taxpayer can affirmatively disprove [fraud or evasion]—regardless of whether the opinion enlivening the amendment power may have lacked an evident and intelligible justification’. ²⁷ This is particularly stark in cases where the taxpayer alleges that there was no evidence to justify the opinion; as Azzi notes, ‘Such an allegation cannot be entertained in pt IVC proceedings’. ²⁸

It is of significant concern that the constitutional function and duty of courts to examine the exercise of executive power should be dependant, as Azzi suggests, ‘on the existence or otherwise of material disproving [fraud or evasion], particularly where the opinion informing the decision to amend was based on “unwarranted assumptions” or not supported by probative evidence’. ²⁹ Noting also that ‘[t]he sufficiency of material in this latter regard is, ultimately, a question for the judiciary in judicial review proceedings which is not possible in Part IVC proceedings’. ³⁰

The Taxpayer’s burden of refuting the Commissioner’s determination is similarly harsh in respect of the determination of tax avoidance for the purposes of Part IVA Income Tax Assessment Act 1936 (Cth). It amounting to a serious allegation of misconduct on the part of the taxpayer that enlivens significant penalties. Indeed, this may be considered as punitive, with the administrative penalties for tax avoidance (and fraud or evasion) being up to 75% of the tax avoided. ³¹ Meaning that the administrative penalties can significantly exceed those applied in criminal cases of tax fraud. In this respect, the Commissioner’s determination of tax avoidance (or fraud or evasion) is quasi-offence like.

The burden of proof operates in the same manner as it does for fraud or evasion. Namely, the Commissioner determines that, in accordance with Section 177D, the taxpayer has avoided tax and, in accordance with section 177F, reassess the taxpayer. There is similarly no requirement that the Commissioner show that the determination is correct, nor to support it with evidence. ³² The Commissioner may, if they so wish, do nothing more than put the taxpayer to proof by tendering the assessment as evidence. ³³

B Application of General Administrative Law Principles

The harshness of the taxpayer’s burden is blunted, to some extent, by the operation of the Briginshaw Principle. ³⁴ The principle holds that, the more serious, grave or morally opprobrious the nature and circumstances of the allegations are, the stronger and more reliable the evidence put forward to prove the facts in issue needs to be. ³⁵ The application of this principle in taxation disputes is particularly well summarised in a paper by barrister, Mathew Leighton-Daly. ³⁶ As he suggests, while generally arising under the auspices of the law of evidence, the Briginshaw Principle encompasses three distinct concepts: the presumption of innocence, the burden of proof and the standard of proof. ³⁷

In respect of the presumption of innocence, though most often associated with criminal proceedings, it is, as Leighton-Daly suggests, equally ‘important to remember that the concept is a rule of substantive law that also has application in civil cases’. ³⁸ Indeed, in Briginshaw, Dixon J held that weight is to be given to the presumption in circumstances such that, unless a person or entity has actually been convicted of a criminal offence, they are presumed to be innocent in both criminal and civil proceedings. ³⁹

In respect of the burden of proof, as discussed previously, it is effectively shared between the Commissioner and the taxpayer. The Commissioner being required to adduce, though not prove, evidence to establish the fraud, evasion or tax avoidance enlivening his assessment. In contrast, the taxpayer is required to adduce and prove evidence in order to establish the absence of those facts upon which the Commissioner has based their assessment. Indeed, as Leighton-Daly suggests, it is perhaps better to view Sections 14ZZK and 14ZZO of the Taxation Administration Act 1953 (Cth) as creating merely a rebuttable presumption rather than reversing the onus of proof. ⁴⁰

In respect of the standard of proof, while the Commissioner remains entitled to rely on evidence of exceedingly limited probative value, the Briginshaw Principle may go some way to redressing this. Dixon J summarised what is required as,

it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. ⁴¹

It would seem iniquitous that these provisions should permit the Commissioner to allege what amounts to serious misconduct on the part of the taxpayer, and assess tax on that basis, without the Commissioner being required to substantiate that allegation to the reasonable satisfaction of the tribunal.

Indeed, as a Rees suggests, it is consistent with the principle of procedural fairness that, at a minimum, a decision-maker must base findings of fact and the ultimate decision upon some probative evidence. ⁴² The rationale for this requirement was explained by Deane J in Minister for Immigration and Ethnic Affairs v Pochi:

It would be both surprising and illogical if, in proceedings before a statutory tribunal involving an issue of [significant gravity], the rules of natural justice were restricted to the procedural steps leading up to the making of a decision and were completely silent as to the basis upon which the decision itself might be made. There would be little point in the requirements of natural justice aimed at ensuring a fair hearing by such a tribunal if, in the outcome, the decision maker remained free to make an arbitrary decision. If [the] decision, in such a case, were to be based on mere suspicion or speculation, the rules of procedure aimed at governing the process of making findings of material fact would involve no more than a futile illusion of fairness. ⁴³

It is, in any event, a requirement that a decision maker base their decision upon some evidence; ⁴⁴ it being an error of law to make a finding of fact which is not supported by any evidence at all. ⁴⁵ This obligation arising inherently from the application of natural justice. ⁴⁶

However, as Deane J noted in Pochi ‘[these] requirements, like all the ordinarily applicable rules of natural justice, may be modified or abolished by the express words or intendment of the legislation establishing the tribunal or conferring jurisdiction upon it . . .’ ⁴⁷ In this regard, sections 175 and 177 ⁴⁸ displace this requirement accepting the Commissioner’s assessment at face value and validating it regardless of any deficiency in its making. Indeed, in Gauci, ⁴⁹ Mason J said plainly that ‘there [is no] statutory requirement that the assessments should be sustained or supported by evidence’.

It reasons that, just as in any other administrative review proceeding, the basis upon which the Commissioner made their determination should be subject to review. Indeed, as the determination amounts to an allegation of criminal or quasi criminal conduct, fundamental principles of procedural fairness would generally demand that a person making such an allegation be required to substantiate it.

The reversal of the onus of proof in disputes regarding the application of Part IVA or section 170 would appear, prima facie, to affront such a principle. Indeed, the current law allows the Commissioner an exceedingly broad discretion to determine what constitutes tax avoidance, fraud or evasion and assess tax, including the imposition of significant penalties. ⁵⁰ This, therefore, leaves the taxpayer with only limited means of refuting the Commissioner’s assessment.

This raises fundamental questions as to whether the application of Part IVA and section 170 offend fundamental tenets of the rule of law.

A Procedural Fairness

A fair procedure for decision making is fundamental to the rule of law, recognised at common law as a duty to accord a person procedural fairness. ⁵⁴ There is no fixed content to the duty with the fairness of the procedure dependant on the nature of the matters in issue, and what would constitute a reasonable opportunity for parties to present their cases in the relevant circumstances. ⁵⁵ Indeed, as Mason J stated in Kioa v West, ‘the expression “procedural fairness” … conveys the notion of a flexible obligation to adopt fair procedures which are appropriate and adapted to the circumstances of the particular case’. ⁵⁶

The requirement that the taxpayer bears the onus of proof in cases concerning application of section 170 and Part IVA of the Income Tax Assessment Act 1936 (Cth) offends the notion of procedural fairness in a number of aspects. Namely, the limited review available to the taxpayer, the significant evidentiary burden placed on them and the lack of information given as to the charge made against them.

B Limited Review

In respect of the application of section 170, the Commissioner’s satisfaction that the taxpayer has committed fraud or evasion is central. That is, that the Commissioner, or his delegate, must actually form the opinion that the taxpayer has committed fraud or evasion. However, often no such opinion is formed. Computer programs examine taxpayers’ bank account records using AUSTRAC information and automatically generate pro forma letters that state that the ATO has formed the opinion that there has been fraud or evasion. ⁵⁷

Part IVA is not subject to this same difficulty, as its application is subject to strict formalised procedures. If a Tax Office auditor considers that Part IVA applies, they will refer the matter to a senior officer in the Tax Office’s tax counsel area. ⁵⁸ If the tax counsel officer supports the auditor’s view, the case is then referred to the Tax Office’s General Anti-Avoidance Rules Panel. ⁵⁹ The panel comprises senior internal and external experts chosen for their ability to provide specialist advice. ⁶⁰ The role of the panel is purely advisory, with the relevant decision under Part IVA taken by the appropriate tax officer having considered the panel’s advice. ⁶¹

It was suggested in the 2015 Report that a similar panel be established to advise whether a finding of fraud or evasion is appropriate or, at the least, that the decision should rest with senior members of the ATO. ⁶² Indeed, in that regard, the ATO updated its practice statement PS LA 2008/6 in 2018 to provide for a more robust internal process before the Commissioner can form an opinion that there has been fraud or evasion. However, the Standing Committee on Tax and Revenue’s 2019 performance review ⁶³ suggests that this has done little to address concerns regarding the ATO’s administration of fraud and evasion cases.

Clearly, the failure to properly form an opinion offends the principles of procedural fairness and, at the very least, procedural fairness should require the Commissioner to form a bona fide opinion that the taxpayer has committed fraud or evasion before applying the provision.

It is, however, common that administrative discretions are preconditioned on the decision maker being satisfied about a particular matter, or forming an opinion as to the existence of a particular set of facts. ⁶⁴ In such cases, when reviewing satisfaction or opinion, the courts look to whether the opinion has been properly formed and, where the opinion was reached, either by taking into account improper considerations or not otherwise formed bona fide, it will be taken not have been properly formed. ⁶⁵ Accordingly, in ordinary circumstances, if a decision maker abrogated their duty to properly form an opinion the decision would be invalidated by that act and subject to judicial review.

However, though decisions of the Taxation Commissioner are prima facie reviewable pursuant to section 75(v) of the Constitution and section 39B of the Judiciary Act 1903 (Cth) for jurisdictional error, ⁶⁶ sections 175 and 177(1) of the Income Tax Assessment Act 1936 (Cth) significantly buffer the ability of a court to review the Taxation Commissioner’s decisions. ⁶⁷ The taxpayer is therefore confined solely to Part IVC of the Taxation Administration Act 1953 (Cth) and, thus, unable to invalidate the Commissioner’s assessment without adducing evidence to disprove the Commissioner’s determination. Notwithstanding that it may have lacked any evident and intelligible justification. In such cases, the taxpayer is required to show that there was no evidence to justify the opinion, not merely that it was improperly made. In this regard, it has been noted that the process of challenging the Commissioner’s determination is onerous and clearly biased towards the revenue. ⁶⁸

C Significant Evidentiary Burden

Similarly, taxpayers face a significant evidentiary burden as it is often the case that evidence no longer exists. Indeed, taxpayers are only legally required to hold their records for five years. ⁶⁹ However, section 170 permits the Commissioner an unlimited period in which to make their assessment. Such that, as is often the case, the taxpayer is required to refute the Commissioner’s assessment several years later when there is only exceedingly limited evidence available. It is suggested that this also offends the notion of procedural fairness.

A number of measures could be employed to counter this, for instance, it has been suggested that the Commissioner should be required to make out a prima facie case ⁷⁰ before the taxpayer should have the legal burden of refuting the Commissioner’s assessment. ⁷¹ Alternatively, that the period be limited, with a judge having discretion to extending this period, or, as is the case in other jurisdictions, that the burden of proof should revert to the Commissioner when the statutory period for the retention of records has expired. ⁷² Indeed, Part IVA limits the Commissioner to a period of four years to amend an assessment which is well within the five-year period that taxpayers are required to hold their records.

D Lack of Information

Further, procedural fairness demands that a decision-maker inform a person affected by the decision and disclose to them adverse information that is credible, relevant and significant. ⁷³ However, in tax disputes, there is no general duty at common law for the Commissioner to give reasons for an administrative decision and only exceedingly limited requirements to give decisions under the various statues. ⁷⁴ Though reasons are often given on request and, should the matter be disputed in the AAT or the Federal Court, the Commissioner will be required to adduce evidence to establish any material fact, thus informing the taxpayer on what basis the allegation is made.

In this regard, as discussed above, the Briginshaw Principle may go some way to affording the taxpayer procedural fairness in respect of fraud or evasion; however, in respect of tax avoidance, the principle affords no comfort. Indeed, the Commissioner may allege tax avoidance on exceptionally limited evidence, thus providing the taxpayer exceedingly little information about what is alleged against them. It is submitted that this aspect of the application of section 170 and Part IVA also denies the taxpayer procedural fairness.

E Apparent Justification for Offending Principle of Procedural Fairness

Clearly, the operation of section 170 and Part IVA does not sit comfortably within the common law duty to accord a person procedural fairness. However, as discussed above, this has typically been justified on the basis that the taxpayer is best placed to discharge the burden of proof given that they are in possession of the underlying facts, which may be peculiarly within their knowledge. There are, however, further justifications given.

One common justification that is given is the proportionality argument. This is generally regarded as the accepted test for justifying most limitations on rights. ⁷⁵ Indeed, the Parliamentary Joint Committee on Human Rights notes that reversal of the burden of proof is likely to be ‘compatible with the presumption of innocence where [it is] reasonable, necessary and proportionate in pursuit of a legitimate objective’. ⁷⁶ This is also accepted in other jurisdictions. The European Court of Human Rights, for instance, noting in Salabiaku v France that,

Presumptions of fact and law operate in every legal system. Clearly, the [European Convention] does not prohibit such presumptions in principle. It does, however, require the contracting states to remain within certain limits in this respect as regards criminal law.

The proportionality test, as applied to the burden of proof, was summarised eloquently by the House of Lords per Lord Bingham as requiring that,

the substance and effect of any presumption adverse to a defendant must be examined, and must be reasonable. Relevant to any judgment on reasonableness or proportionality will be the opportunity given to the defendant to rebut the presumption, maintenance of the rights of the defence, flexibility in application of the presumption, retention by the court of a power to assess the evidence, the importance of what is at stake and the difficulty which a prosecutor may face in the absence of a presumption. ⁷⁸

In this regard, it is submitted that the significant evidentiary burden placed on the taxpayer in requiring them to establish the non-existence of a particular intention, or otherwise adduce evidence several years after the fact, is such that it is not reasonable, taking into account the seriousness of what is alleged, that the taxpayer bear the onus of proof.

Conversely, the seriousness of tax fraud, evasion and tax avoidance is often posited as justifying placing a legal burden of proof on the taxpayer. ⁷⁹ Related thereto, another alternative argument, often used in cases concerning the application of administrative provisions, is that the penalty is not severe and, thus, it is justifiable to shift the burden of proof. ⁸⁰ The logic being that ‘while the breach of such provisions often carries the potential for extensive and severe harm, the penalties are often fairly minor’. ⁸¹ This, however, does not hold true in the case of tax avoidance, fraud or evasion. While it may be argued that the detriment to revenue as a result of these activities justifies the reversal of the burden of proof, the penalties that may be imposed administratively are so significant as to outweigh this. Indeed, the financial penalties are substantially higher than those that may be imposed by a court in respect of a criminal conviction for tax-related offences.

In respect of convictions for fraud or evasion, ⁸² a court may impose, instead of, or in addition to, a penalty of imprisonment, a pecuniary penalty of up to $11,100 (at time of writing). ⁸³ However, where section 170 or Part IVA is applied, a taxpayer may be liable to pay penalties of up to 75% of the shortfall amount, being the difference between the Commissioner’s determination of the taxpayer’s tax liability or credit entitlement, and the liability or entitlement as submitted in the taxpayers returns, ⁸⁴ and will further be subject to interest charges (3.07% at time of writing) ⁸⁵ in addition to the increase in tax. With interest accruing by defult, and the Commissioner retaining discretion to remit them where it would be fair and reasonable to do so. ⁸⁶

The penalties are also payable upfront, before the taxpayer has had the opportunity to challenge the Commissioner’s assessment. Where the Commissioner has formed the opinion that a debt exists and has issued a notice of assessment, sections 14ZZM and 14ZZR of the Taxation Administration Act 1953 (Cth) provide that the debt stands payable even where disputed by the taxpayer or currently before the AAT or a Federal Court pending verdict.

Notwithstanding the ATO’s practice of refraining from enforcing payment where a debt is objected to or whist it is subject to review, ⁸⁷ this adds significant weight to the seriousness of the penalties imposed. Indeed, the Standing Committee on Tax and Revenue has recommended that debts should not be payable until a final determination is made by the relevant body or court; with the ATO required, as all other plaintiffs, to apply to the court for an injunction if it fears that the debt will not be paid. ⁸⁸

The above evidences that, in disputing the Commissioner’s determination of tax avoidance, fraud or evasion, the taxpayer is in an extremely unenviable position. Contrary to almost every other area of law, the taxpayer is afforded exceedingly limited information as to what is alleged against him, bears the onus of refuting those allegations and is subject to significant penalties, which may be exacted from him immediately, notwithstanding that he may ultimately refute those allegations. This raises strong concerns that section 170 and Part IVA breach the fundamental duty to accord a person procedural fairness. However, this is not the only aspect of these provisions that raises potential issues regarding the rule of law.

F Certainty and Prospectivity

Legal certainty is another fundamental tenet of the rule of law. The principle of legal certainty states that laws must be accessible and, so far as possible, intelligible, clear and predictable; to that end, questions of legal right and liability should ordinarily be resolved by the application of law and not the exercise of administrative discretion. ⁸⁹ The principle is well founded in common law, particularly in respect of commerce. In Vallejo v Wheeler, ⁹⁰ Lord Mansfield said of the principle that ‘in all mercantile transactions the great object should be certainty. [It is] of more consequence that a rule should be certain than whether the rule is established one way or the other: because speculators in trade then know which ground to go upon’. This is equally true in respect of taxation law, perhaps more so.

Indeed, The OECD Committee on Fiscal Affairs goes as far as to define certainty as a right, in so far as taxpayers have a right to a degree of certainty in determining what the tax consequences of their actions will be. ⁹¹

It is worth noting that certainty may not always be possible, particularly in the application of anti-avoidance or fraud provisions; however, it is clearly a goal of the tax system that a taxpayer should be able to anticipate the consequences of their ordinary personal and business transactions. ⁹² Certain tax laws are integral to the proper function of the tax system. Where laws are certain the predictability and, in turn, stability of the tax system are increased, allowing each taxpayer to rationally plan their financial transactions. ⁹³ This, in turn, promotes greater faith in the tax system and, thus, compliance, making the collection of tax ‘palatable if not pleasant’. ⁹⁴ Related thereto is the principle that laws should be applied prospectively. It is another fundamental tenant of the rule of law that the law is capable of being known to everyone, so that everyone can comply. Thus, a law with retrospective application is, by its nature, incapable of being known and complied with as a person cannot know of and comply with a law that does not yet exist.

Part IVA and section 170 fall well short of this ideal. Indeed, it is not immediately apparent to the taxpayer whether their actions will amount to tax avoidance, fraud or evasion in the Commissioner’s view. This aspect of both Part IVA and section 170 offends the principles of certainty and prospectivity, as the taxpayer is made aware of the standards by which his conduct will be assessed ex post facto. ⁹⁵ Indeed, as Atkinson suggests, an uncertain law is in effect a retrospective law, as it is not possible to determine what the law was prior to undertaking the relevant action. ⁹⁶ The ability of a taxpayer to foresee the tax consequences of their economic activities is a fundamental part of the rule of law. ⁹⁷

Although there is significant guidance as to whether the Commissioner is likely to apply Part IVA or form an opinion as to the existence of fraud or evasion, ⁹⁸ as Venables notes, the innocent ‘\should not have to depend on the administrative discretion of revenue officials as to whether they will suffer the full rigours of a too widely drawn provision.’ ⁹⁹

G Justification for Offence to Principle of Certainty and Prospectivity

Administrative discretion is, however, both an inevitable and often positive aspect of the tax system. ¹⁰⁰ Indeed, it permits the application of the taxing provisions, mutatis mutandis, in circumstances where either parliament or the courts would be unable to apply the provisions. ¹⁰¹ Nonetheless, there must, by necessity, be limits to this discretion. In particular, it should be noted that the ATO is an administrative body charged with both interpreting and applying the tax laws and collecting the tax calculated thereunder. ¹⁰² As Atkinson puts it,

The fox is in charge of the hen house. There is clearly a delicate balance between the revenue authority’s role of dispassionately interpreting tax legislation on the one hand, while maximising tax receipts on the other. This balance can only be maintained where any discretion vested in the revenue authority is subject to clear and coherent standards against which the courts can compare their conduct. ¹⁰³

In the absence of such standards, the revenue authority is left to determine which activities constitute fraud, evasion or tax avoidance. Indeed, as Atkinson notes, ‘[t]hey are, in effect, being asked not merely to apply the law, but to create it’, noting further that ‘[t]hese are matters more appropriately left to parliament’. ¹⁰⁴ However, as with the issues that arise in respect of the onus of proof, there are justifications given for this breach of the rule of law. The primary justification being that, as a matter of practicality, a degree of uncertainty is necessary for the purpose of Part IVA. Once tax avoidance schemes are detected, specific anti-avoidance measures may be enacted to prohibit those practices. This is generally successful in preventing further proliferation. ¹⁰⁵ However, there is no means to recover taxes from those schemes entered into before the enactment of the specific anti-avoidance measures. The primary advantage of a Part IVA, at least from a revenue perspective, is that it does permit the recovery of taxes, as the provision was in operation at the time of the taxpayer’s avoidance. Further, it has been suggested that uncertainty is, in fact, an inherent feature of anti-avoidance or fraud provisions. Indeed, as Justice Pagone notes,

The uncertainty, in short, is embedded in the application of [such provisions] and acts as a sword of Damocles over the heads of taxpayers each time a taxable event occurs or a taxable transaction is entered into. We have adopted, as the provision of last resort, a provision which may operate at least in part from fear of the unknown (with the full impact of the chilling effect upon commerce and economic activities which that may bring). ¹⁰⁶

While some degree of uncertainty must, by its nature, be necessary in the application of any anti-avoidance or fraud provisions, it is important to note that there is a point at which a purported law becomes so ‘uncertain and devoid of meaning that it ceases to promulgate a coherent and discernible standard or rule’. ¹⁰⁷ Indeed, as Orow notes,

In such circumstances, particularly where the legislature has vested plenary discretionary power in the relevant administering authority to do whatever it considers reasonable in the circumstances, that law fails to prescribe the limits of its operation and arguably loses or never acquires the character of law. ¹⁰⁸

Practical justifications aside, as Prebble and Prebble note,

In the face of such an obvious breach of the rule of law, the fact that so many countries have general anti-avoidance rules seems difficult to account for. The idiosyncrasies of tax law no doubt make general anti-avoidance rules necessary, but it is unlikely that the public tolerance of general anti-avoidance rules is due to public knowledge of these idiosyncrasies. ¹⁰⁹

The ‘dubious’ moral status of tax avoidance perhaps accounting for the public acceptance of this quite apparent affront to the rule of law. ¹¹⁰ As Lord Denning said in Re Weston’s Settlements, ‘the avoidance of tax may be lawful, but it is not yet a virtue’. ¹¹¹ Indeed, retrospective legislation has long been justified on the basis that ‘the wrongful nature of the conduct ought to have been apparent to those who engaged in it’. ¹¹²

However, although this argument may carry some weight in respect of fraud or evasion, the highly technical and complex nature of tax law is such that it is hard to sustain that a taxpayer, even a sophisticated and well advised one, could be quite certain as the whether their actions will amount to tax avoidance. Further, it remains that the most effective means of preventing tax avoidance is comprehensive anti-avoidance legislation. ¹¹³ In directing the courts to divine the supposed intentions or parliament or identify the spirit of a given law, the parliament is abrogating this responsibility, leaving it to the ATO and the judiciary to give shape to the law. ¹¹⁴