Deputy Commissioner of Taxation v Barkworth Olives Management Ltd [2010] QCA 80 [2011] 1 Qd R 326

SUPREME COURT OF QUEENSLAND CITATION: Barkworth Olives Management Ltd v Deputy Commissioner of Taxation [2010] QCA 80 PARTIES: BARKWORTH OLIVES MANAGEMENT LIMITED ACN 084 316 101 (respondent/appellant) v DEPUTY COMMISSIONER OF TAXATION (applicant/respondent) FILE NO/S: Appeal No 6430 of 2009 SC No 6845 of 2008 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 9 April 2010 DELIVERED AT: Brisbane HEARING DATE: 2 November 2009 JUDGES: McMurdo P and Fraser JA and P Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the orders made ORDER: Appeal dismissed with costs. CATCHWORDS: TAXES AND DUTIES – INCOME TAX AND RELATED LEGISLATION – ASCERTAINMENT OF ASSESSABLE INCOME – PARTICULAR CLASSES OF TAXPAYERS – TRUSTEES, CESTUIS QUE TRUST AND ADMINISTRATORS OF ESTATES – TRUSTEES AND CESTUIS QUE TRUST – IN GENERAL – where the respondent applied and obtained summary judgment against the appellant, as the trustee for specified trusts, for unpaid amounts of income tax specified in notices of assessment and notices of amended assessment – where the appellant was a trustee that had been assessed to tax under s 99A, Div 6 of Pt III, Income Tax Assessment Act 1936 (Cth) – where the primary judge concluded that the contended effect of s 254(1)(e) was an issue that could be raised in the objection proceedings by the appellant but it was no answer to the respondent's claim in the face of the conclusive effects of notices of assessment under provisions in the ITAA, including s 177 – whether on the evidence before the primary judge s 254(1)(e) operated to qualify the effect of the notices of assessment – whether s 254(1)(e) of ITAA 1936 should be construed to qualify the operation of s 204 in application to sections of Div 6 of Pt III, including s 99A, that expressly -- 1 of 16 -- 2 contemplate that a trustee will be made personally liable for tax as an exception to the general liability of beneficiaries – whether the Commissioner is entitled to recover tax from the appellant Income Tax Assessment Act 1936 (Cth), s 96, s 99, s 99A, s 99A(4), s 99A(4A), s 161(1), s 169, s 174, s 175, s 175A, s 177(1), s 204, s 245, s 254(1)(d), s 254(1)(e), s 254(1)(h) Taxation Administration Act 1953 (Cth), s 255-5, s 255-45, s 255-50 Income Tax Regulations 1936 (Cth) Uniform Civil Procedure Rules 1999 (Qld), r 292 Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598; [2007] HCA 54, cited Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2009) 239 CLR 346; [2009] HCA 32, cited Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473; [2008] HCA 41, followed Deputy Commissioner of Taxation v Brown (1958) 100 CLR 32; [1958] HCA 2, cited Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168; [1995] HCA 23, cited Deputy Federal Commissioner of Taxation of the Commonwealth of Australia v Futuris Corporation Ltd (2008) 237 CLR 146; [2008] HCA 32, cited Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1; [1994] HCA 39, considered Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1993) 114 ALR 507; [1993] FCA 258, cited Fermanis v Cheshire Holdings Pty Ltd (1990) 1 WAR 373, cited FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360; [1981] HCA 27, cited General Credits Limited v Tawilla Pty Ltd [1984] 1 Qd R 388, cited Howey v Federal Commissioner of Taxation (1930) 44 CLR 289; [1930] HCA 45, cited Patterson v Federal Commissioner of Taxation (1936) 56 CLR 507; [1936] HCA 57, cited Prestige Motors Pty Ltd v Commissioner of Taxation (1993) 47 FCR 138; [1993] FCA 580, cited Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28, followed Stapleton v Federal Commissioner of Taxation (1955) 93 CLR 603; [1955] HCA 58, cited Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893, cited COUNSEL: S W Couper QC, with L J Nevison, for the appellant K D Dorney QC, with P G Bickford, for the respondent SOLICITORS: Cleary Hoare Solicitors for the appellant Australian Government Solicitors for the respondent -- 2 of 16 -- 3 [1] McMURDO P: I agree with Fraser JA's reasons for dismissing this appeal with costs. [2] The construction of s 254(1)(e) Income Tax Assessment Act 1936 (Cth) (ITAA) adopted by Fraser JA is consistent with the scheme of the ITAA. Its Pt III deals with "Liability to taxation" and Div 6 of Pt III with the liability to taxation in respect of "Trust income". Provisions such as s 99 and s 99A, contained in Div 6 of Pt III, specifically provide for circumstances in which a trustee can be assessed and made liable to pay tax. [3] Part IV of ITAA, which deals with returns and assessments and is comprised of s 161 to s 177 inclusive, has no divisions. It empowers the Commissioner to make an assessment of tax liability.1 Section 175 means that the validity of such an assessment is not affected by non-compliance with the ITAA. Section 177 provides that notices of assessment by the Commissioner are conclusive evidence of the correctness of the amounts and particulars in the assessment. That is so, despite a taxpayer's ability to object to an assessment under s 175A.2 Although the inflexible and inevitably harsh effect of s 175 and s 177 has been often noted by the High Court, most recently in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd,3 the legislature has not amended the ITAA. The comprehensive evidentiary effect of s 177, however, is not absolute: see Federal Commissioner of Taxation v Futuris Corp Ltd.4 But questions such as the tort of misfeasance in public office or behaviour of the respondent or her officers amounting to jurisdictional error do not arise in respect of the present appellant's assessment. [4] The provision at the centre of the appellant's contentions, s 254, is contained in Pt VIII, "Miscellaneous". Part VIII is immediately preceded by Pt VIIB, "Medicare levy and Medicare levy surcharge" and then by Pt VI, "Collection and recovery of tax" and immediately precedes Pt X, "Attribution of income in respect of controlled foreign companies". The terms of s 254 do provide some support for the appellant's contention. But it seems unlikely the legislature, in placing s 254 in Pt VIII, "Miscellaneous", was intending to so significantly limit the liability of agents and trustees in the way contended for by the appellant contrary to the specific provisions relating to the liability of trust income to taxation in Div 6 of Pt III. [5] I agree with the orders proposed by Fraser JA. [6] FRASER JA: On 11 June 2009 a judge in the trial division acceded to the respondent’s application for summary judgment against the appellant for $81,425,884.83. That amount was the total of various unpaid amounts specified in notices of assessment and notices of amended assessment to income tax, general interest charges on those unpaid amounts, notices of assessment of penalty amounts payable in respect of tax shortfall, and further general interest charges, all of which had been issued against the appellant as the trustee for specified trusts. [7] The issue for the primary judge was whether there was any real prospect of a successful defence by the appellant or any need for a trial of the respondent’s claim 1 See especially s 166 and s 169 ITAA. 2 See FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360, Mason and Wilson JJ at 375; Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168. 3 (2008) 237 CLR 473, Gummow A-CJ, Heydon, Crennan and Kiefel JJ, 491-493, [40]-[50]. 4 (2008) 237 CLR 146, Gummow, Hayne, Heydon and Crennan JJ,164-165, [55]-[57] and Kirby J, 185-191, [132]-[152]. -- 3 of 16 -- 4 or any part of that claim.5 The appellant, a trustee who had been assessed to tax under s 99A in Div 6 of Pt III of the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”), argued that the effect of s 254(1)(e) of the same Act was that the appellant was not personally liable for any of the amounts specified in the notices of assessment served upon the appellant because, according to the appellant’s evidence, it had not received any of the money which was the income the subject of the assessments. [8] Section 254 provides: “Agents and trustees (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply: (a) He shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature, derived by him in his representative capacity, or derived by the principal by virtue of his agency, and for the payment of tax thereon. (b) He shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other. (c) If he is a trustee of the estate of a deceased person, the returns shall be the same as far as practicable as the deceased person, if living, would have been liable to make. (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. (f) He is hereby indemnified for all payments which he makes in pursuance of this Act or of any requirement of the Commissioner. (g) Where as one of 2 or more joint agents or trustees he pays any amount for which they are jointly liable, the other or others shall be liable to pay him each his equal share of the amount so paid. 5 Uniform Civil Procedure Rules 1999 (Qld), r 292. -- 4 of 16 -- 5 (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. (2) In subsection (1), tax includes the general interest charge under section 163AA, former section 170AA, subsection 204(3), former subsection 221AZMAA(1), former subsection 221AZP(1), former subsection 221YD(3) or former section 221YDB, additional tax under former Part VII and shortfall interest charge.” [9] The primary judge concluded that the contended effect of s 254(1)(e) was an issue that could be raised in the objection proceedings which had been launched by the appellant but it was no answer to the respondent’s claim in the face of the conclusive effect of notices of assessment under the well known provisions in ITAA 1936, including s 177. [10] The substantial question in the appeal is whether on the evidence before the primary judge s 254(1)(e) arguably operated to qualify what otherwise would be the conclusive effect of the notices of assessment. Facts [11] The respondent’s statement of claim pleaded her cause of action and made averments and statements pursuant to s 255-50 of Schedule 1 of the Taxation Administration Act 1953 (“TAA 1953”). The respondent filed affidavits which verified the allegations in her statement of claim that the appellant was assessed to income tax for the years of income ending 30 June 1999 through to 30 June 2003. Notices of assessment and amended assessments in respect of those years were served on the appellant on or about the issue dates of those notices in accordance with ITAA 1936 and the Income Tax Regulations 1936 (Cth). The appellant failed to pay income tax for those years of tax on or before the relevant due dates. The respondent then claimed that by reason of that failure the appellant became liable to pay general interest charges pursuant to s 204 of ITAA 1936 and Part IIA of TAA 1953, and that the appellant was indebted to the Commonwealth of Australia in the sum of $70,171,872.49 in respect of income tax and additional charges for late payment. Particulars of that amount were given by reference to the assessed amounts of income tax liability for the various years of income as shown on the notices of assessment, and for general interest charges. [12] The affidavits also verified the respondent’s allegations of assessments of administrative penalties, the service of notices of assessment, and the appellant’s failure to pay the administrative penalties specified in the notices. The respondent then asserted the appellant’s liability and indebtedness to the Commonwealth on those accounts in the total sum, particulars of which were again given with references to the notices of assessment and general interest charges, of $3,104,344.62. The statement of claim claimed the total sum of $73,276,217.11 together with further general interest charges under ITAA 1936 and TAA 1953 which, with some further legal costs, led to the total amount of the judgment of $81,425,884.83. -- 5 of 16 -- 6 [13] Each notice of assessment was issued to the appellant as trustee of a described trust, it identified the relevant income year, it specified the relevant taxable income (described as “Your Taxable Income”) and relevant penalties, and it asserted the amount payable and the date upon which the amount payable fell due for payment. Objections against the assessments, amended assessments and penalty assessments were lodged but those objections remained unresolved. [14] Section 255-45 of TAA 1953 provides that a certificate signed by the Commissioner, a Second Commissioner or a Deputy Commissioner covering one of the matters stated by s 255-45(2) or (3) is prima facie evidence of the matter in a proceeding to recover an amount of tax-related liability. The respondent relied upon such a certificate. It verified that each of the notices of assessment and amended assessment was made and served upon the appellant and certified that $81,425,884.83 was due by the appellant to the Commonwealth. [15] The appellant’s defence admitted that at all relevant times it was the trustee of the trusts as described in the notices of assessment, that it received the notices of assessment and amended assessment as alleged by the respondent, and that it had not paid any amount of income tax for any of the tax years in accordance with the notices of assessment nor any amount of the administrative penalties and general interest charges assessed by the Commissioner. The appellant pleaded that it was not liable because it had not received the money which constituted the assessed taxable income. In opposition to summary judgment the appellant adduced affidavit evidence from its director, Mr Pollard, to this effect: the appellant was at the relevant times and it remained a trustee of the trusts described in the various notices of assessment and amended assessment; each notice of assessment and notice of amended assessment was issued to the identified trust; and in each case the income assessed to tax was money that did not come to the appellant in its representative capacity or at all. The arguments [16] The appellant argued that the statutory provision which rendered a taxpayer liable to pay the amount of assessed tax, s 204 of ITAA 1936, was qualified by s 254(1)(e). Whilst it ordinarily would be liable under s 204 to pay tax assessed to it as trustee under Div 6 of Pt III (subject to the ultimate result of the proceedings on its objections under Part IVC of TAA 1953) the effect of s 254(1)(e) was to preclude the respondent from obtaining a judgment against the appellant unless, in terms of s 254(1)(d) and (e), the appellant had or should have retained sufficient money coming to it in its capacity as trustee to pay the tax. The appellant argued that s 254(1)(e) defines the extent of a trustee’s liability to pay tax; that it is a specific provision which limits the liability otherwise created by s 204 to pay tax; and that a notice of assessment has no role to play in that respect because it merely sets out the amount of tax which is to be paid out of sums received and retained or required to be retained by the trustee. [17] The appellant argued that the process of assessment of a trustee (and, therefore, the objection procedure mentioned by the primary judge) did not involve the Commissioner in determining the amount of money which the trustee received or retained in the trustee’s representative capacity for the purposes of s 254(1)(d). That aspect of the argument was common ground. The respondent’s senior counsel informed the Court that this reflected the Commissioner’s practice, adopted in the -- 6 of 16 -- 7 subject assessments, of not considering any application of s 254 during the process of assessment of trustees. The respondent did indicate that if the Court considered that the application of s 254 formed part of the process of assessment then the Court should act on that view, but the respondent did not advocate that view or develop any argument in support of it. (It follows that the respondent did not seek to support so much of the primary judge’s reasoning as relied on the view that the application of s 254 might be challenged in the objection process.) [18] The respondent defended the summary judgment by reliance upon an analysis of the well known statutory provisions which ordinarily render a tax liability created upon the service of a notice of assessment immune from challenge. One aspect of the argument was the contention that s 254(1)(e) only affected the amount which was recoverable by execution on a judgment, which therefore should be for the whole assessed amount even where s 254(1)(e) operated; and that a purpose of allowing such a judgment even where the trustee was rendered not liable to pay all or part of it by operation of s 254(1)(e) was to facilitate the operation of the remedies given by s 254(1)(h). Discussion [19] The respondent’s senior counsel acknowledged that the Commissioner did not purport to assess the appellant under s 254(1) and no provision in Div 6 of Pt III suggests that any possible application of s 254(1)(e) forms part of the ascertainment of the tax payable by a trustee under that Division. That premise of both parties’ arguments should be accepted. [20] On the other hand, if s 254(1)(e) does operate, its operation could not be limited to execution after a judgment for a tax debt has been obtained. A judgment for a tax debt incurred by a trustee as trustee does not limit the respondent’s rights to execution in the way proposed by the respondent and it also does not authorise direct recourse to the trust assets.6 The judgment in this case was given in the form appropriate for a debt: “…the Defendant pay to the Plaintiff the amount of $81,425,884.83…”. Under that form of judgment the respondent is entitled to seek recourse to the appellant’s assets to recover the full amount of the judgment and as the respondent’s senior counsel acknowledged in argument, the respondent is entitled to apply to wind up the appellant if the judgment debt is not paid. Furthermore, whatever remedies may be given by s 254(1)(h) the operation of that provision is not expressed to be conditional upon the existence of a judgment against the trustee (or agent);7 and even if the remedy given by that provision were predicated upon the existence of a judgment for a tax debt, that would provide no ground for implying that a judgment may be ordered against a trustee (or agent) for an amount which (on the present hypothesis) s 254(1)(e) provides that the trustee (or agent) is not liable to pay. [21] But although I would reject that aspect of the respondent’s argument, I would uphold the respondent’s argument that an analysis of the relevant statutory provisions and their interrelationship with each other demonstrates that it was entitled to summary judgment. [22] It must be acknowledged that the question of statutory construction is not straightforward. So much is sufficiently indicated by the tentative remarks about 6 See General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388 per McPherson J at 389–390. 7 And see Bruton Holdings Pty Ltd (In liq) v Federal Commissioner of Taxation and Anor (2009) 239 CLR 346 at [12]–[15]. -- 7 of 16 -- 8 the relation between s 89 of the Income Tax Assessment Act 1922-1928 (Cth) (the predecessor of s 254) and s 31 of that Act (the predecessor of Div 6 of Pt III ) in the joint judgment of Rich and Dixon JJ in Howey v Federal Commissioner of Taxation,8 in the course of which their Honours observed that s 89 enables the Commissioner to assess a trustee, “but it is not easy to say precisely in respect of what income.” [23] The taxation of the income of trust estates is dealt with in Div 6 of Pt III of ITAA 1936. Broadly speaking, the “net income” of a trust estate is equivalent to the amount which would be the taxable income if the trust estate were an Australian resident taxpayer. (For ease of reference, I will refer to the net income of the trust estate by the abbreviation “trust income”.) In Div 6 of Pt III, s 96 states the general rule: a trustee is not liable as trustee to pay income tax upon the trust income except where the Act so provides. Accordingly, where tax is payable upon the trust income it is the beneficiary who is assessed and is liable to pay the tax unless some provision exceptionally renders the trustee liable to be assessed and to pay the tax. For present purposes it is sufficient to summarise the scheme of Div 6 of Pt III in the following very broad (therefore inevitably imprecise) terms: where a beneficiary not under a legal disability is presently entitled to the trust income then (subject to some qualifications not presently relevant) the trustee will not be liable to pay tax on the trust income and the beneficiary or beneficiaries will be assessed and liable to pay that tax: s 97; if beneficiaries are presently entitled to all or part of the trust income but one or more of the beneficiaries is under a legal disability, the trustee is to be assessed and is liable to pay tax on all or a corresponding proportion of the trust income: s 98; and if no beneficiary is presently entitled to part of the trust income the trustee is to be assessed and is liable to pay tax in respect of a corresponding part of the trust income: ss 99, 99A. [24] There are other provisions dealing with different scenarios, but the point which is relevant here is that, in specified cases, instead of a beneficiary or beneficiaries being assessed and liable to pay tax on the trust income the trustee must be assessed and is liable to pay the tax. This is such a case. We were informed by the appellant’s senior counsel that the assessments were made under s 99A. It is convenient therefore to refer to some of its provisions, by way of example of the manner in which particular provisions in Div 6 of Pt III render trustees liable to tax as an exception to the general rule that beneficiaries are liable to pay the tax assessed upon the trust income. Section 99A(4) provides that in specified circumstances “the trustee shall be assessed and is liable to pay tax on the net income of the trust estate…”. A different form of words is used in s 99A(4A), which provides that in the different circumstances it specifies “the trustee shall be assessed and is liable to pay tax on…part of the net income of the trust estate.” These expressions are used throughout Div 6 of Pt III where liability to tax on trust income is imposed upon a trustee in lieu of the beneficiary. [25] Section 161(1) provides that “every person” must, if required by the Commissioner by notice published in the Gazette, give to the Commissioner a return for a year of income within the period specified in the notice. Section 166 then provides that from the returns and any other information in the Commissioner’s possession he shall make an assessment of the amount of the taxable income of any taxpayer and of the tax payable thereon. That provision may apply in relation to the assessment of trustees under Div 6 of Pt III, but if it does not then s 169 applies. Section 169 8 (1930) 44 CLR 289 at 294. -- 8 of 16 -- 9 provides that where under the Act any person is liable to pay tax the Commissioner may make an assessment of the amount of such tax. That an assessment is to be made in relation to a trustee rendered liable to pay tax on trust income under Div 6 of Pt III is also made clear by the relevant sections in Div 6 of Pt III themselves (including s 99A) and so much is yet again confirmed by the definition of “assessment” as meaning, where the taxpayer is the trustee of a trust estate, “the ascertainment of so much of the net income of the trust estate as is net income in respect of which the trustee is liable to pay tax (or that there is no income in respect of which the trustee is so liable) and of the tax payable on that net income (or that no tax is payable)…”. It follows from these provisions that the amount shown on each notice of assessment in this case as “Your Taxable Income” must be understood as a reference to so much of the net income of the trust estate in respect of which the trustee is made liable to pay tax by s 99A, or other relevant provision in Div 6 of Pt III.9 [26] Section 174 of ITAA 1936 provides that the Commissioner is obliged to serve a notice of an assessment in writing upon the person liable to pay tax. Section 175 provides that the validity of any assessment shall not be affected by reason that any of the provisions of the Act have not been complied with. Section 175A provides that a taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of TAA 1953. Section 177(1) provides that the production of a notice of assessment or of duly signed copies shall be “conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of [TAA 1953] on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.” As was common ground in this appeal, these provisions apply in relation to the subject assessments. As was also common ground, the effect of reading s 175 with ss 175A and 177(1) is that the validity of an assessment is not affected by a failure to comply with any provision of the Act but a taxpayer may object to the assessment in the manner set out in Part IVC of TAA 1953.10 [27] As the appellant argued, it is s 204 of ITAA 1936 which creates the legal consequence that the income tax specified as being payable in a notice of assessment becomes due and payable by the person liable to pay the tax to the Commissioner at a particular time.11 The liability of the taxpayer to pay tax prior to assessment is “conditional” upon assessment and objection12 or “inchoate”.13 Service of the notice of assessment “crystallises the taxpayer’s liability under the Act and makes the tax assessed due and payable at a certain date (s 204)”.14 Section 204 relevantly provides that, subject to other provisions of Part VI, where the taxpayer’s return was lodged on or before the due date for lodgement, the tax payable by a taxpayer for a year of income becomes due and payable on the later of 9 See Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 per Mason CJ, Brennan, Deane, Gaudron and McHugh JJ at 16. 10 See FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 at 375; Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 at 184, and Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at [24]. 11 See Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 at 181– 182, 191–192, 196, 211, 229. 12 Deputy Commissioner of Taxation v Brown (1958) 100 CLR 32 at 51-52, concerning earlier provisions in the Act. 13 As was submitted on behalf of the Deputy Commissioner of Taxation in Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 at [77]. 14 Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 at 192; Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 at [77]. -- 9 of 16 -- 10 21 days after the due date for lodgement of that return specified in the Gazette under section 161 for the year of income or 21 days after a notice of assessment is given to the taxpayer; otherwise the tax becomes due and payable 21 days after the due date for lodgement. 15 That is supplemented by s 255-5 of TAA 1953, which provides that an amount of a tax-related liability that is due and payable is a debt due to the Commonwealth, payable to the Commissioner, and may be sued for by the Commissioner, a Second Commissioner or a Deputy Commissioner. Accordingly, in circumstances in which s 99A rendered the appellant trustee liable to be assessed and to pay tax upon the trust income, the combined effect of s 204 of ITAA 1936 and s 255-5 of TAA 1953 was that the amount described in each notice of assessment as the amount payable became due and payable by the appellant as a debt due to the Commonwealth and payable to the Commissioner on the date specified in the notice as the due date for payment. Again, so much was common ground, subject to any operation of s 254(1)(e). [28] The ground upon which the appellant contended that s 254(1)(e) excluded liability was, as sworn to by the appellant’s director, that the income assessed for tax was “money that did not come to the [appellant] in its representative capacity, or at all.” To treat that evidence as throwing doubt either on the amount of the tax payable by the appellant or on the amount of the trust income would be contrary to s 177(1) of ITAA 1936 (under which both amounts were conclusively established for the purposes of these proceedings by each notice of assessment) and s 204 of ITAA 1936 and s 255-5 of TAA 1953 (which rendered the amount of tax specified in each notice of assessment a debt due and payable by the appellant to the Commonwealth at the time specified in the notice of assessment). On any view there is a substantial conflict between s 254(1)(e) and those statutory provisions summarised earlier which render trustees liable for tax in accordance with s 99A and similar provisions in Div 6 of Pt III. That conflict must be alleviated, as far as possible, “by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions”, a process which may require the Court to determine which is the “leading provision”, which is the “subordinate provision”, and “which must give way to the other.”16 [29] The better construction of s 254(1)(e), at least when it is read in isolation from the other provisions I have discussed, appears to be that it imposes and qualifies personal liability only where the agent or trustee retains or fails to retain money which comes to the agent or trustee after the making of an assessment under s 254(1)(b). That accords with the terms and structure of s 254(1) as a whole and it is suggested by the expression in s 254(1)(d) “tax which is or will become due”, an expression that postulates a degree of certainty about the fact and amount of the tax liability which might not be present before a notice of assessment is served.17 Section 254(1)(e) would therefore ordinarily limit the liability of an agent or trustee to any amount of money received by the agent or trustee after the due date for 15 Section 204 applied in relation to income tax payable in respect of years after 1 July 2000, replacing provisions applicable for previous years in ss 208 and 209 of ITAA 1936: A New Tax System (Tax Administration) Act 1999 (Cth), Sch 2, Pt 2 Items 25 and 26; Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 (Cth), Sch 1, Item 160. Those earlier provisions were to similar effect. For present purposes the differences are immaterial. 16 Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 at 382. 17 See Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 at 626, [77]– [78]. -- 10 of 16 -- 11 lodging a return18 and thus after the derivation of the income with reference to which the tax was assessed. On this construction of s 254(1)(e), the appellant’s argument would produce quite remarkable results in the case of a trustee who, unlike other trustees, and unlike agents generally, is made liable under Div 6 of Pt III. Tax assessed to the trustee upon trust income, which otherwise would become due and payable shortly after issue of the notice of assessment, would not become due or payable unless and until the trustee, in that capacity, subsequently received more income in the form of money sufficient to pay the tax. That would be so even if the trust income with reference to which the tax was assessed was derived in the form of the receipt of money by the trustee and even though no beneficiary was presently entitled to any of the trust income or potentially liable for the tax. These are such surprising results as to cast doubt upon the construction which produces them. [30] Other constructions of s 254(1)(e) may also be open, but on any construction which produces the limitation of liability for which the appellant contends there is a substantial conflict between it and those provisions which render trustees liable for tax with reference to s 99A and similar provisions in Div 6 of Pt III. In my opinion, the limitation of liability in the general provision in s 254(1)(e) must give way to those specific provisions in Div 6 of Pt III which impose liability to tax upon the trustee as an exception to the general rule that the beneficiaries are liable. Whilst s 254(1)(e) qualifies the personal liability s 254 creates, it should not be construed as qualifying the trustee’s personal liability created by operation of s 204 and the other provisions mentioned earlier where, as in this case, a trustee is expressed to be liable to tax under a provision of Div 6 of Pt III; that is so, at least where, as in this case, the trustee was trustee during the period in which the trust income was derived and up to the time when the liability accrued under s 204. 19 [31] In support of a contrary construction the appellant’s counsel referred to the following passage in Federal Commissioner of Taxation v Prestige Motors Pty Ltd:20 “By virtue of s 254(1)(b), the trustee was obliged to make a return in respect of any income derived by him in a representative capacity. Although s 254(1)(b) provides that the trustee is to be assessed on the return, the trustee is not liable to pay tax on any of that income save in respect of so much of the net income of the trust as is brought to tax by s 98, s 99 or s 99A. Where the trustee is liable to pay tax which is or will become due, the trustee is authorized and required to retain sufficient funds to meet that payment out of “any money which comes to him in his representative capacity”(s 254(1)(d)) and, to that extent but only to that extent, the trustee is personally liable for that tax (s 254(1)(e)). The trustee is not liable to be assessed to tax or to pay tax in respect of any share of the net income of a trust estate which is included in the assessable income of a beneficiary under s 97. But, where the trustee is liable to be assessed to tax, the assessment imposes a debt to be borne by the estate [Deputy Federal 18 See paragraph 27 of these reasons. 19 The first instance decisions to which the Court was referred are consistent with this view, although the point seems not to have been squarely in issue or comprehensively argued in those cases: Xebec Pty Ltd (in liq) & Ors v Enthe Pty Ltd & Anor (1987) 18 ATR 893; Fermanis v Cheshire Holdings Pty Ltd (1990) 1 WAR 373 at 376. 20 (1994) 181 CLR 1 per Mason CJ, Brennan, Deane, Gaudron and McHugh JJ at 11. -- 11 of 16 -- 12 Commissioner of Taxation v Brown (1958) 100 CLR 32, at p 42]. Section 254(1)(b) directs that “each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other”.” [32] That passage supports the appellant’s argument in so far as it conveys that s 254(1) comprehensively deals with the personal liability of trustees for tax. Considerable weight must be given to this considered statement by the High Court, but in my respectful opinion it does not foreclose the present question in the appellant’s favour. The High Court was not called upon to decide and it did not decide whether or not trustees might be liable to make returns under s 161(1), to be assessed on such returns, and to pay tax under the statutory provisions discussed earlier in these reasons; and the Court did not decide whether or not s 254(1)(e) applied to limit the trustee’s liability for tax in a case of this kind. Reference to the question in issue in Federal Commissioner of Taxation v Prestige Motors Pty Ltd and the authority cited in the quoted passage suggests that it should not be read as requiring the conclusion that s 254(1)(e) applies in a case such as this. [33] The question was whether a notice of assessment was effective where the notice did not name the trustee. At first instance the Federal Court declared that the income tax assessed to the trustee was due and payable by the trustee to the Commissioner pursuant to s 204 of ITAA 1936.21 The Full Federal Court reversed that decision22 but the High Court set aside the decision of the Full Court. That case therefore did not define the relationship between s 254 and the statutory provisions which give conclusive effect to notices of assessment. The effect of ss 174, 177 and 204 of ITAA 1936 was, however, discussed in subsequent observations in the joint judgment:23 “Service of the notice of assessment brings to an end the process of assessment As Kitto J explained in Batagol v Federal Commissioner of Taxation [(1963) 109 CLR 243], service of the notice of assessment on the taxpayer fixes the ascertainment of the amount of the taxable income and the amount of the tax payable by the taxpayer and brings to an end the process of assessment. His Honour said [ibid, at pp 251- 252]: “[I]f the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s 204. Thus, and thus only, there is brought about an 'ascertainment' of the taxable income and of the tax … The word 'ascertainment' being understood in this sense, the definition of 'assessment' means, in my opinion, the completion of the process by which the provisions of the 21 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1993) 114 ALR 507 (Gummow J). 22 Prestige Motors Pty Ltd v Federal Commissioner of Taxation (1993) 47 FCR 138. 23 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 per Mason CJ, Brennan, Deane, Gaudron and McHugh JJ at 13. -- 12 of 16 -- 13 Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.” Service of the notice on the taxpayer brings the process of assessment to an end in the sense that, in conformity with s 174(1), the notice, which necessarily reflects the requisite elements of the calculation that has been made, is served after the making of that assessment. In Batagol, Kitto J was directing his comments to an assessment of a taxpayer to tax on his own taxable income. In applying the provisions of the Act to an assessment of a trustee to tax in respect of the net income of the trust estate, it is necessary to take into account the definition of “assessment” in s 6(1) as it relates to an assessment of a trustee to tax in respect of such income. Hence the process of assessment in such a case – and the notice – must specify, not the taxable income, but “so much of the net income of the trust estate as is net income in respect of which the trustee is liable to pay tax”.” [34] The notice of assessment in that case was addressed to the “Prestige Toyota Trust” and, like the notices of assessment here, it included a statement that: “Your taxable income is …” [35] The High Court concluded that “the recipient of the notice…would have understood it as a notice of assessment directed to the trustee of the Prestige Toyota Trust, and that the notice relates to the assessment of the trustee to tax in respect of a share of the net income of that trust”;24 and that, “the notice purported to define the tax liability of the trustee to be met out of money in the trust estate” and that the notice of assessment was therefore “a notice of assessment of the respondent to tax”.25 [36] As to the liability being met out of money in the trust estate, the authority cited in the passage quoted in paragraph 31 of these reasons was Deputy Commissioner of Taxation v Brown.26 Significantly, that case did not concern a trustee who was rendered liable to pay tax on income of a trust estate derived by the trustee during the relevant year of income. The question in Brown was whether the Commissioner could recover from a person entitled in a distribution of a deceased’s estate amounts she had received from the executors which were sufficient to cover the tax which had been assessed upon the executors by assessments and amended assessments made after they had fully administered the estate. The dictum of Dixon CJ in Brown cited in Prestige Motors Pty Ltd concerned the combined effect of ss 216, 217 and 254 of the Income Tax and Social Services Contribution Assessment Act 1936-1952 (Cth). Section 216 applied where a taxpayer escaped full taxation in his lifetime by reason of not having duly made full, complete and accurate returns: in that event the Commissioner was given the same powers and remedies against the trustees of the estate of the taxpayer in respect of the taxable income of the taxpayer as the Commissioner would have had against the taxpayer if he was still living, and consequential provisions (including the creation of a first charge on all the 24 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 at 15. 25 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 at 16. 26 (1958) 100 CLR 32 at 42. -- 13 of 16 -- 14 taxpayer’s estate in the hands of the trustees for the amount of the tax) were provided for that purpose. Section 217 provided that, where at the time of a person’s death, tax had not been assessed and paid on the whole of the income derived by that person up to the date of his death, the Commissioner should have the same powers and remedies for the assessment and recovery of tax from the trustees of that person’s estate as he would have had against that person if that person was alive: again consequential provisions were made to give effect to that purpose. Importantly for present purposes then, the taxing provisions operated in relation to income derived by the deceased taxpayer rather than by the trustee. [37] It was in that context that Dixon CJ observed:27 “The provisions of ss 216, 217 and 254 are specific: they do not in terms extend beyond the “trustees”. They are interpreted as imposing a liability upon the executors only quoad assets and as meaning by assessment to impose a debt owing by the estate: see Stapleton v Federal Commissioner of Taxation [(1955) 93 CLR 603, at p 618].” [38] In Stapleton v Federal Commissioner of Taxation,28 the relevant provision in issue was again s 216 of the Income Tax and Social Services Contribution Assessment Act 1936-1953 (Cth). The question was whether the Commissioner was entitled to claim a first charge on the assets of a bankrupt vested in the Official Receiver in Bankruptcy to secure payment of the amount of amended assessments to tax issued after the bankruptcy and after the appointment of the Official Receiver or, alternatively, whether the Commissioner was entitled to prove against the estate in the same amount in priority to most of the secured creditors. Dixon CJ, McTiernan, Williams, Webb and Taylor JJ29 construed s 216 as authorising the Commissioner to assess the trustees of the estate and proceed against them for recovery of the tax, “though he could not, of course, recover from them anything in excess of the value of the assets in their hands at the time of the assessment or coming to their hands thereafter (cf Patterson v Federal Commissioner of Taxation [(1936) 56 CLR 507 at pp 518, 519]).” [39] Patterson v Federal Commissioner of Taxation30 concerned s 62 of the Income Tax Assessment Act 1922-1932 (Cth), which gave the Commissioner the same powers and remedies for the assessment and recovery of tax from the executors and administrators as the Commissioner would have against the deceased person if that person were alive. In the context of that section, which rendered a representative liable to pay tax in respect of income derived by a taxpayer before the representative was appointed, it seems unsurprising that the Court concluded that the executors and administrators’ liability was “as representatives and extends only to the assets of the deceased coming to their hands or which ought to come to their hands.”31 [40] In summary, Brown, Stapleton and Patterson concerned taxing provisions which imposed a liability to tax upon a person who was appointed as a representative after the relevant income had been derived and who therefore had no opportunity during the period when that income was derived to make provision for any tax liability. 27 Deputy Commissioner of Taxation v Brown (1958) 100 CLR 32 at 42. 28 (1955) 93 CLR 603. 29 Stapleton v Federal Commissioner of Taxation (1955) 93 CLR 603 at 618. 30 (1936) 56 CLR 507. 31 Patterson v Federal Commissioner of Taxation (1936) 56 CLR 507 at 519. -- 14 of 16 -- 15 Whilst s 254 might well have a similar operation in a similar case, there is no similar rationale for construing s 254(1)(e) as qualifying the ordinary operation of s 204 in its application to those sections in Div 6 of Pt III which expressly contemplate that a trustee will be made personally liable for tax as an exception to the general liability of beneficiaries. [41] For these reasons I construe s 254(1)(e) as having no potential application to limit a trustee’s personal liability where the trustee is assessed to tax under a provision in Div 6 of Pt III, such as s 99A, which expressly provides for the liability of the trustee; that is so at least where the same person remains trustee during the whole of the period in which the relevant taxable income is derived and up to and including the date upon which the liability for tax accrues under s 204. [42] I would add that this construction seems consistent with the extrinsic evidence concerning the Bill for ITAA 1936. The report of the Royal Commission which led to the enactment suggests that the original predecessor of s 254(1)(e) was intended to apply where it was the beneficiary, rather than the trustee, who was assessed to tax under the provision upon which Div 6 of Pt III was based.32 However, as that material was not the subject of submissions I do not rest my decision upon it. [43] The result, that the Commissioner is entitled to recover tax pending resolution of the appellant’s contention that it did not receive the income upon which it has been taxed as a trustee, may seem very harsh, but decisions of the High Court33 establish that the potential for great hardship if a taxpayer’s objections are ultimately found to have merit provides no ground for denying the clear terms of the statutory provisions. Other questions [44] I have discussed only the effect of the legislation in relation to the notices of assessment. The appellant’s position was no stronger in relation to the amended assessments, general interest charges on those unpaid amounts, notices of assessment of penalty amounts payable in respect of tax shortfall, and further general interest charges.34 I understood the appellant to accept as much in the submissions made on its behalf. It is therefore unnecessary to embark upon a detailed consideration of the particular statutory provisions that apply in those respects. It is sufficient to record my conclusion that in each case the appellant failed to make out an arguable defence and summary judgment was rightly entered. Proposed order [45] The appeal should be dismissed with costs. [46] PETER LYONS J: I have had the advantage of reading the reasons for judgment of Fraser JA. I agree with his Honour’s reasons, and with the order which he 32 The Royal Commission on Taxation, Third Report, p 122, [711]: “Where a beneficiary is presently entitled to income of a trust estate and is not subject to any disability he should be taxed in respect of that income whether he has actually received it or not. …Conversely, the trustee should be under no liability in respect of the assessment or payment of tax on such income, except in his representative capacity under the provisions dealing with the collection of tax.” 33 See Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at 491, [43] – [45]. 34 The question about the effect of s 254 in relation to the last three of those matters was raised by an amendment to the notice of appeal made by leave granted during the hearing. -- 15 of 16 -- 16 proposes. -- 16 of 16 --