Barkworth Olives Management Ltd v Deputy Commissioner of Taxation [2009] QCA 191

SUPREME COURT OF QUEENSLAND CITATION: Barkworth Olives Management Ltd v Deputy Commissioner of Taxation [2009] QCA 191 PARTIES: BARKWORTH OLIVES MANAGEMENT LIMITED (defendant/applicant) v DEPUTY COMMISSIONER OF TAXATION (plaintiff/respondent) FILE NO: Appeal No 6430 of 2009 SC No 6845 of 2008 DIVISION: Court of Appeal PROCEEDING: Application for Stay of Execution ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 14 July 2009 DELIVERED AT: Brisbane HEARING DATE: 8 July 2009 JUDGE: Chesterman JA ORDER: Application dismissed CATCHWORDS: TAX AND DUTIES – INCOME TAX AND RELATED LEGISLATION – COLLECTION AND RECOVERY OF TAX – PROCEEDINGS FOR RECOVERY – WHERE APPEAL PENDING – STAY OF PROCEEDINGS OR EXECUTION – where appellant disputes liability for taxation debt – where judgment has been entered against appellant – whether recovery proceedings should be stayed in light of appeal Corporations Act 2001 (Cth), s 459G Income Tax Assessment Act 1936 (Cth), s 177, s 254 Taxation Administration Act 1953 (Cth), s 14ZZM Commissioner of Taxation v Futuris Corporation Ltd (2008) 82 ALJR 1177; [2008] HCA 32 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 82 ALJR 1411; [2008] HCA 41 Deputy Commissioner of Taxation v Niblett [1965] NSWR 1552 Deputy Federal Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1; [1994] HCA 39 -- 1 of 5 -- 2 COUNSEL: L J Nevison for the applicant P G Bickford for the respondent SOLICITORS: Cleary Hoare Solicitors for the applicant Australian Government Solicitor for the respondent [1] CHESTERMAN JA: On 18 July 2008 the respondent commenced proceedings in the Supreme Court to recover the sum of $70,171,872.49 by way of income tax, interest and penalties it alleged the applicant was liable to pay. A defence was filed on 14 August 2008. The only relevant paragraph is 5 in which the applicant admitted not paying any amount of income tax the subject of the respondent’s claim but denied liability to pay because: “... the effect of subsection 254(1) of the Income Tax Assessment Act 1936 (“ITAA”) ... inasmuch as no money being income the subject of assessments came to the (applicant) is that the (applicant) was, and is, not under any obligation to pay the tax personally or otherwise.” [2] The defence is so cryptic as to be unintelligible but what the applicant intended by it was explained in submissions. [3] The respondent issued and served notices of assessment and amended assessments for income tax on the applicant for each of the years ended 30 June 1999, 2000, 2001, 2002 and 2003. It is common ground that the applicant has not paid anything in response to the assessments. [4] On 11 June 2009 Byrne SJA entertained an application for summary judgment brought by the respondent and gave judgment for the respondent against the applicant in the sum of $81,425,884.23. The increase in amount was no doubt due to the accrual of interest. [5] The applicant has appealed and seeks, pursuant to UCPR 761 a stay of the enforcement of the order, pending the appeal. The application was resisted. [6] The applicant was the trustee of four trusts, the beneficiaries of which were investors in olive tree plantations which were meant, I presume, to derive immediate tax deductions and eventual profits. The defence imperfectly expressed in paragraph 5 is that the applicant was not personally liable to pay income tax by reason of s 254 of the ITAA. That provides: “(1) With respect 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 ... 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. … -- 2 of 5 -- 3 (d) He is thereby 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 he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax.” [7] In Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1, the High Court of Australia, comprising Mason CJ, Brennan, Deane, Gaudron and McHugh JJ, relevantly held as follows: “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. 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’.” [8] The applicant has objected to all of the assessments and amended assessments on this basis, that it did not receive any monies in a representative capacity. The respondent has not yet delivered its answer to the objections but a decision is expected by the end of August next. [9] The only ground of substance advanced in the notice of appeal is that the primary judge “erred in law as to the inter-relationship, interpretation and application to be given to s 177 ITAA and s 254 ITAA; and thereby concluding that the applicant was personally liable to pay the tax assessed in the notices”. [10] Byrne SJA did not in fact address the point and did not express the opinion attributed to him. His Honour’s reasons were extremely brief. His Honour said: “The Notices of Assessment to sustain the claim ... are in evidence and ... the (respondent) has the benefit of statutory provisions, principally section 177 of the Income Tax Assessment Act. The consequence is that if there is to be challenge to the assessments, it must necessarily be in the objection proceedings provided for under the Act. -- 3 of 5 -- 4 It was contended that section 254 ... has the consequence that the (applicant) is not liable to pay the tax. That is an issue that can be raised in the objection proceedings which have already been launched. It is no answer to the Commissioner’s claim in the face of the conclusive effect of the Notices of Assessment.” [11] Whatever test one applies when considering an application for stay of execution of a judgment pending appeal it is, I think, clear that a stay should not be granted where it is clear that an appeal cannot succeed. It may be that such occasions will be rare but where a judge can be confident that an appeal is in that category the application for a stay should be dismissed. [12] The learned primary judge was plainly right to conclude that the applicant’s assertion of fact that it did not receive any monies in a representative capacity is no answer to its liability to pay the tax assessed. That assertion which is the subject of its objections to the assessments can only be recognised in the objection process provided for by the income tax legislation. [13] Section 175A of the ITAA provides: “(1) 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 the Taxation Administration Act 1953 (“TAA”).” [14] Section 177 provides: “Evidence (1) The production of a notice of assessment ... shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.” [15] Section 14ZZM of the TAA 1953 provides that: “The fact that a review is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending.” [16] The meaning and effect of these provisions were recently considered by the High Court in Commissioner of Taxation v Futuris Corporation Ltd (2008) 82 ALJR 1177 and Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 82 ALJR 1411. It is not necessary to set out the judgments. It is enough to reproduce part of the head note from Broadbeach: “… Production by the commissioner of notices of assessment ... conclusively demonstrates that the amounts and particulars in the assessments ... are correct. That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped...”. -- 4 of 5 -- 5 In that case by an application under s 459G of the Corporations Act 2001 (Cth) because there could be no “genuine dispute” that the debt was payable. The judgments in Broadbeach expressly approve earlier decisions, Deputy Commissioner of Taxation v Niblett [1965] NSWR 1552 and Deputy Federal Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54 in which defences to a claim for tax payable pursuant to assessments were struck out on the basis that the relevant provisions of the legislation made the debts uncontestable. [17] The legislation is clear and the authorities are distinct. The only recourse available to the applicant is to object to the assessments, as it has done. There is no basis in law for disputing the debt created by the assessments in the Supreme Court proceedings. [18] The applicant complains that s 254 of ITAA has not been the subject of definitive judicial analysis. That may be so but any such analysis must ensue from a disallowance of the applicant’s objections and any appeal against the disallowance. Because of the conclusive nature of the assessments this Court cannot embark upon an examination of whether s 254 operates so as to exonerate the applicant from liability to pay the tax assessed. [19] In my opinion the appeal cannot succeed. It is not appropriate to order that enforcement of the primary judgment be stayed. The application is dismissed. -- 5 of 5 --