Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq)
[2014] FCAFC 133
•8 October 2014
FEDERAL COURT OF AUSTRALIA
Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133
Citation: Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133 Appeal from: Australian Building Systems Pty Ltd v Commissioner of Taxation [2014] FCA 116 Parties: COMMISSIONER OF TAXATION v AUSTRALIAN BUILDING SYSTEMS PTY LIMITED ACN 094 238 678 (IN LIQUIDATION) File number: QUD 100 of 2014 Parties: COMMISSIONER OF TAXATION v GINETTE DAWN MULLER AND JOANNE EMILY DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LIMITED ACN 094 238 678 (IN LIQUIDATION) File number: QUD 101 of 2014 Judges: EDMONDS, COLLIER AND DAVIES JJ Date of judgment: 8 October 2014 Catchwords: INCOME TAX – Section 254(1) of Income Tax Assessment Act 1936 (Cth) (“1936 Act”) – company in liquidation – liquidators deemed to be trustees by definition in s 6(1) of the 1936 Act – sale of land by company giving rise to capital gain – whether s 254(1)(d) obliges liquidators to retain from proceeds of sale an amount sufficient to pay the tax to be assessed in respect of the sale of the property prior to the issue of an assessment or whether the obligation to retain only arises after the issue of an assessment Legislation: Income Tax Assessment Act 1915 (Cth) s 52
Income Tax Assessment Act 1918 (Cth) s 34
Income Tax Assessment Act 1922 (Cth) s 89
Income Tax Assessment Act 1936 (Cth) s 254
Income Tax Assessment Act 1997 (Cth) s 102-5Cases cited: Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598
CIC Insurance Ltd v Bankstown Football Club Ltd (1995–1997) 187 CLR 384
Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 293 ALR 257
Deputy Commissioner of Taxation v Barkworth Olives Management Ltd [2011] 1 Qd R 326
Federal Commissioner of Taxation v H (2010) 188 FCR 440
Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1
Federal Commissioner of Taxation v Resource Capital Fund IV LP (2013) 215 FCR 1
Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264
Howey v Federal Commissioner of Taxation (1930) 44 CLR 289
Union-Fidelity Trustee Co. of Australia Ltd v Federal Commissioner of Taxation (1969) 119 CLR 177Date of hearing: 20 August 2014 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 35 Counsel for the Appellant: Mr NJ Williams SC with Mr MJ O’Meara Solicitor for the Appellant: McInnes Wilson Lawyers Counsel for the Respondent: Mr P Crutchfield QC with Mr M Trim Solicitor for the Respondent: Thomson Geer Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 100 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: AUSTRALIAN BUILDING SYSTEMS PTY LIMITED
ACN 094 238 678 (IN LIQUIDATION)
Respondent
JUDGES:
EDMONDS, COLLIER AND DAVIES JJ
DATE OF ORDER:
8 OCTOBER 2014
WHERE MADE:
BRISBANE
THE COURT NOTES THAT:
The appellant has made a decision to approve the respondents’ application for funding under the ATO Test Case Litigation Program (“Program”) and to provide them with funding under the Program to assist with the respondents’ costs of the proceedings.
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.No order as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 101 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: GINETTE DAWN MULLER AND JOANNE EMILY DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LIMITED ACN 094 238 678 (IN LIQUIDATION)
Respondent
JUDGES:
EDMONDS, COLLIER AND DAVIES JJ
DATE OF ORDER:
8 OCTOBER 2014
WHERE MADE:
BRISBANE
THE COURT NOTES THAT:
The appellant has made a decision to approve the respondents’ application for funding under the ATO Test Case Litigation Program (“Program”) and to provide them with funding under the Program to assist with the respondents’ costs of the proceedings.
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.No order as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 100 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: AUSTRALIAN BUILDING SYSTEMS PTY LIMITED
ACN 094 238 678 (IN LIQUIDATION)
Respondent
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 101 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: GINETTE DAWN MULLER AND JOANNE EMILY DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LIMITED ACN 094 238 678 (IN LIQUIDATION)
Respondent
JUDGES:
EDMONDS, COLLIER AND DAVIES JJ
DATE:
8 OCTOBER 2014
PLACE:
BRISBANE
REASONS FOR JUDGMENT
EDMONDS J:
INTRODUCTION
These are appeals from a single judge of this Court on facts which fall within a small compass, and give rise to what is a confined and discrete issue.
During the year ended 30 June 2012, the liquidators of Australian Building Systems Pty Limited (“ABS”) caused it to sell a property at Crestmead in Queensland. ABS made a capital gain on the sale of some $1.12 million which entered into the calculation of ABS’ assessable income of that year. Importantly, it seemed to be common ground that an assessment of taxable income calculated, inter alia, by reference to such capital gain would, in the fullness of time, be issued to ABS, not to the liquidators in their capacity as such: see the primary judge’s reasons for judgment (“R”) at [2], and the parties respective submissions on appeal. The significance of this is dealt with below.
In the context of these facts, the issue raised by these appeals is whether s 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (“the 1936 Act”) obliges the liquidators, relevantly trustees by virtue of the definition of the term “trustee” in s 6(1) of the 1936 Act, to retain from the proceeds of sale an amount sufficient to pay the tax to be assessed in respect of the sale of the property in the period prior to the issue of an assessment, as the Commissioner both before the primary judge and on hearing of the appeals contended, or whether the obligation to retain only arises after the issue of an assessment, as the primary judge held.
For the reasons which follow, I am firmly of the view that the primary judge is correct and that s 254(1)(d) of the 1936 Act only imposes an obligation of retention in terms of the paragraph once a relevant assessment has issued. My reasons are not coterminous with those of the primary judge but before considering the primary judge’s reasoning, it is relevant to set out s 254 as it stands in the 1936 Act today and to briefly consider its legislative history.
THE LEGISLATION
Section 254 as it stands in the 1936 Act today provides:
254 Agents and trustees
(1)With respect to every agent and with respect also to every trustee, the following provisions shall apply:
(a)He or she 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 or her in his or her representative capacity, or derived by the principal by virtue of his or her agency, and for the payment of tax thereon.
(b)He or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his or her 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 or she 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 or she is hereby authorized and required to retain from time to time out of any money which comes to him or her in his or her 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 or she 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 or she has retained, or should have retained, under paragraph (d); but he or she shall not be otherwise personally liable for the tax.
(f)He or she is hereby indemnified for all payments which he or she 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 or she pays any amount for which they are jointly liable, each other one is liable to pay him or her an equal share of the amount so paid.
(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 the Commissioner would have against the property of any other taxpayer in respect of tax.
(2)Subsection (1) applies to the following in the same way as it applies to tax:
(a) the general interest charge under:
(i)section 163AA, former section 170AA, former subsection 204(3), former subsection 221AZMAA(1), former subsection 221AZP(1), former subsection 221YD(3) or former section 221YDB of this Act;
(ii) section 5-15 of the Income Tax Assessment Act 1997;
(b) additional tax under former Part VII of this Act;
(c) shortfall interest charge.
Note 1:The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953 and shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act.
Note 2:Subsection 8AAB(4) of that Act lists the provisions that apply the general interest charge.
(3)In paragraphs (1)(d) and (e), and in its first occurrence in paragraph (1)(h), tax includes, in addition to the things mentioned in subsection (2):
(a)trustee beneficiary non-disclosure tax within the meaning of Division 6D of Part III; and
(b)general interest charge payable under section 102UP in respect of such tax.
LEGISLATIVE HISTORY
Section 254(1) of the 1936 Act had its origin in s 52 of the Income Tax Assessment Act 1915 (Cth) (“the 1915 Act”):
52. 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 derived by him in his representative capacity and the payment of income tax thereon.
(b)He shall in respect of such income 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 an executor or administrator, the returns shall be the same as far as practicable as the deceased person, if living, would have been liable to make.
(d)Where as agent or trustee he pays income tax, he is hereby authorized to recover the amount so paid from the person in whose behalf he paid it, or to deduct it from any money in his hands belonging to that person.
(e)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 the income tax which is or will become due in respect of the income.
(f)He is hereby made personally liable for the income tax payable in respect of the income if, after the Commissioner has required him to make a return, or while the tax remains unpaid, he disposes of or parts with any fund or money which comes to him from or out of which income tax could legally be paid, but he shall not be otherwise personally liable for the tax :
Provided that the Commissioner may, upon application by the agent, permit disposal of such fund or money or part thereof as he considers necessary.
(g)He is hereby indemnified for all payments which he makes in pursuance of this Act or by requirements of the Commissioner.
(h)For the purpose of insuring the payment of income 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 income tax, and in as full and ample a manner.
It is to be observed that apart from the gender equalisation phrases of “or she” and “or her” inserted in para (d) of s 254(1) by Act No 41 of 2011, and the addition of the words “profits or gains” in 1986 (see [12] below), para (e) of s 52 of the 1915 Act was in identical terms to para (d) of s 254(1) as it stands in the 1936 Act today.
Section 52 was amended by s 34 of the Income Tax Assessment Act 1918 (Cth) (“the 1918 Act”) by inserting in para (a) thereof after the word “capacity” the words “or derived by the principal by virtue of his agency”, an amendment not presently relevant.
The Income Tax Assessment Act 1922 (Cth) (“the 1922 Act”) re-enacted s 52 of the 1915 Act, as amended by s 34 of the 1918 Act, as s 89.
When the 1936 Act was enacted, s 254 took the place of s 89. Relevantly, at that time, para (d) of s 89 in the 1922 Act was deleted and para (e) of s 89 in the 1922 Act became para (d) of s 254 in the 1936 Act.
After its enactment in the 1936 Act, s 254(1) was not amended until 1981. The 1981 amendment was not substantive.
Section 254(1) was amended again in 1986. With the advent of the taxation of capital gains, the words “or any profits or gains of a capital nature” were inserted after the word “income” in para (a) of s 254(1); the words “or those profits or gains” were inserted after the word “income” in para (b); and the words “profits or gains” were inserted after the word “income” in paras (d) and (e).
THE REASONING OF THE PRIMARY JUDGE
The primary judge summarised the parties’ submissions below at R [19]:
The Commissioner’s submission is that, in the circumstances of this case, the effect of s 254(1)(d) of the ITAA36 was that the liquidators became liable to retain from the proceeds of sale of the Crestmead property when those proceeds came into their hands an amount sufficient to pay the tax that will become due in respect of the net capital gain arising from the disposal of that property. It was not necessary, so the Commissioner submitted, for there to be a notice of assessment before the retention obligation could arise. ABS and the liquidators submitted that, in the absence of an assessment, there could be no obligation. In the present case, no assessment has yet issued.
The same submissions were respectively made on the hearing of the appeals.
The primary judge’s process of reasoning relied heavily on what was said by the High Court in Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 where it was held that the payment and retention obligations found in s 255(1)(a) and s 255(1)(b) respectively arose only upon the issuing of an assessment. At R [20]–[22], his Honour said:
[20] In Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 (Bluebottle), it fell to the High Court to construe s 255 of the ITAA36. Each of the parties sought to gain assistance in relation to the construction and application of s 254 of the ITAA36 either by analogy or contrast from what was said in Bluebottle about s 255. It was held in that case that the payment and retention obligations found in s 255(1)(a) and 255(1)(b) respectively arose only upon the issuing of an assessment. The critical passages in the High Court’s judgment in Bluebottle are at paras [97] and, in light of that, [72], [80], [81] and [82]:
[97]Once it is recognised that content can be given to the obligation imposed by s 255(1)(b) only if an assessment has issued, the operation of the provision, as a whole, can be seen to be that described at [72] of these reasons.
[72]Uninstructed by authority, and considered in isolation from other provisions of the 1936 Act, s 255 takes a form which suggests that its operation can be described as being:
(a)to oblige persons of the kind described in the chapeau to s 255(1) to pay the tax assessed as due and payable by a non-resident who meets the relevant characteristics identified in that chapeau (s 255(1)(a));
(b)to permit the person paying the tax to recoup the tax paid or to be paid by retaining sufficient out of the money of the non-resident coming into the payer’s hands and to oblige the person to retain sufficient of the non-resident’s money to do so (s 255(1)(b));
(c)to extend the notion of money of the non-resident in the hands of the payer to include amounts which the payer is liable to pay the non-resident (s 255(2)) but subject to the presently irrelevant qualification made by s 255(2A);
(d)to limit the liability of the payer to the amount that comes into the hands of the payer (s 255(1)(c));
(e)to give the payer indemnity for all payments made in pursuance of the Act (s 255(1)(d)); and (f) to make like provision with respect to the Commonwealth, a State or an authority of the Commonwealth or a State (s 255(3)).
[80]Paragraph (b) of s 255(1) should be read as referring to an amount of tax that has been assessed. The phrase “tax which … will become due” is to be understood as referring to tax which, although assessed, is not yet due for payment.
[81]This construction of s 255(1)(b) gives proper weight to the language used in that paragraph (the tax which is or will become due by the non-resident) when compared with the different expression used in para (a) (the tax due and payable by the non-resident). As Gibbs CJ observed in Clyne v Deputy Commissioner of Taxation, “[t]he word ‘due’ is ambiguous; it can mean owing, although not payable until some future date, or it can mean presently payable”. And as the decision in Clyne illustrates, it is necessary to consider expressions like “due”, and “due and payable”, when used in the 1936 Act, in the context of the Act as a whole. When “due” is used in the collocation found in s 255(1)(b), “the tax which is or will become due by the non-resident”, the requirement for specifying the amount of money that meets that description requires that the word “due” is read as meaning assessed as owing.
[82]Once those steps are taken, the obligations to retain and to pay are seen as intersecting obligations. The point of their intersection is the specification of the tax which under para (a) is to be paid when required by the Commissioner, and which under para (b) is both the amount that may be retained (the controller “is hereby authorised”) and the amount that must be retained (the controller “is hereby … required”). …
[Footnote reference omitted]
[21] The Commissioner pointed to the imposition by s 254(1)(a) of the ITAA36 of a liability on a trustee to be “answerable as taxpayer” as the source of a connection between the holding of office as a liquidator and the derivation by ABS (the “taxpayer”) of a capital gain. The answer to the question as to whether the liquidators are presently subject to any obligation to retain and to pay is not supplied by regard to “answerable as taxpayer” in isolation. As with s 255, it would be wrong to approach the construction of s 254 piecemeal.
[22] That the word “due”, which also appears in s 254(1)(d), admits of ambiguity was accepted in Bluebottle at [81], referring to an earlier observation to like effect by Gibbs CJ in Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 8. Even so, the same “intersecting obligation” to which the High Court referred in Bluebottle is evident in s 254 of the ITAA36. The retention obligation falls on a liquidator pursuant to s 254(1)(d) and the payment obligation (“and for the payment of tax thereon”) by virtue of being made “answerable as taxpayer” by s 254(1)(a). The whole section is predicated upon the subjection of the “trustee”, here the liquidators, to a range of obligations, “as a taxpayer” but which materially include a limited but nonetheless intersecting retention and payment obligation. The payment obligation is the point of the indemnity for which s 254(1)(f) provides. By analogy with Bluebottle, content can be given to the obligation imposed by s 254(1)(d) only if an assessment has issued,
His Honour found comfort in his concluded construction of s 254(1)(d) by what was said by Fraser JA, with whom McMurdo P and Peter Lyons J agreed, in Deputy Commissioner of Taxation v Barkworth Olives Management Ltd [2011] 1 Qd R 326 (Queensland Court of Appeal). At R [23] the learned primary judge said:
[23] As it happens, that construction of s 254(1)(d) of the ITAA36 accords with a construction of s 254 favoured by Fraser JA, McMurdo P and Peter Lyons J agreeing, in Deputy Commissioner of Taxation v Barkworth Olives Management Ltd [2011] 1 Qd R 326 at [29] (Barkworth Olives). Fraser JA there observes of the expression “tax which is or will become due” that it is “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.” I agree. Further, there is, with respect, quite some understatement in the observation made by Fraser JA. For example, that a net capital gain is included in a taxpayer’s assessable income is certain: s 102-5, ITAA97. But assessable income and taxable income are not to be equated. The amount, if any, if [sic] the taxation liability will depend upon what amount, if any, proves, at the conclusion of a given year of tax to be the taxpayer’s taxable income. That amount may be far from certain at the time when the CGT event occurs.
THE COMMISSIONER’S SUBMISSIONS ON APPEAL
The Commissioner’s outline of submissions assailed the primary judge’s process of reasoning and its heavy reliance on the High Court’s conclusion in Bluebottle, where the phrase “is or will become due” in s 255(1)(b) of the 1936 Act was construed, by the use of its present tense (“is … due”), as referring to tax which was presently payable and, by its use of the future tense (“will become due”), as referring to tax which had been “assessed as owing”, although not presently payable (i.e., the time for payment had not arrived) (at [80]–[81]). The Commissioner submitted that the word “due”, in the phrase “is or will be due” in s 254(1)(d) of the 1936 Act means “owing” and not “presently payable”. Properly understood, the Commissioner submitted, the decision of the High Court in Bluebottle in relation to s 255 of the 1936 Act does not preclude and, in fact, supports that construction of s 254. Reliance was placed, by the Commissioner, on the observations of Allsop CJ in Commissioner of Taxation v Resource Capital Fund IV LP (2013) 215 FCR 1 at [2] that statutory construction is not to be approached by “a comparison of the words of two provisions in order to find sufficient conformance to apply the reasoning” in an authoritative construction of one provision to the other. “[R]ather”, Allsop CJ continued, “it is to attend to the words of the relevant provision … and ascertain their and its content, having regard to the language used, the apparent purpose and to any impracticality, difficulty or absurdity than may attend any posited construction”.
So much may be accepted as a principle of statutory construction, but even if, as the Commissioner’s senior counsel argued, the word “due” in the phrase “is or will become due” in s 254(1)(d) means “owing”, nothing is or will become owing by the liquidators prior to the issue of an assessment to them and, in consequence, no retention obligation will arise in terms of s 254(1)(d) prior to that point in time. I will return to an analysis of why this is so later in these reasons, but for the moment turn to address the Commissioner’s written outline of submissions (“WOS”) which are predicated on premises which are, in a number of respects, fundamentally flawed.
In his conclusion at para 26 of his WOS, the Commissioner submits:
For the above reasons, on its proper construction, s 254(1)(d) of the 1936 Act authorities and obliges a trustee in receipt of IPG in a representative capacity to retain from that IPG sufficient to pay the tax which is or will become due in respect of the IPG both before and after an assessment has issued.
The reference to “IPG” is to income, profit or gains. But s 254(1)(d) in its terms is not confined to a “receipt of income, profit or gains”; it extends to “any money which comes to [the trustee] in his or her representative capacity” (emphasis added); it would include, for example, money coming to the trustee by way of further settlement. On the construction for which the Commissioner contends, the trustee would be obliged, prior to assessment, to retain out of money coming to the trustee by way of further settlement, so much as is sufficient to pay tax to be assessed in the future. With respect, that proposition is so bizarre as to immediately cast doubt on its propriety.
In summarising his overall submission at para 3 in his WOS, the Commissioner submits:
On the liquidators’ entry into the contract of sale of the Crestmead property, a tax liability for the capital gain arising from the sale arose by the occurrence of CGT Event A1. Accordingly, on receipt of the proceeds of sale, the liquidators were obliged under s 254(1)(d) to retain from the proceeds of sale an amount sufficient to pay that tax liability and this was so whether or not an assessment had then been issued.
With respect, no tax liability arose on the entry into of the contract of sale of the Crestmead property, either for ABS or, more relevantly, the liquidators. At most, ABS made a capital gain which entered into computation of its net capital gain for the year ended 30 June 2012 (which could not be determined until the end of that year of income (see s 102-5(1) of the Income Tax Assessment Act 1997 (Cth) (“the 1997 Act”))), being the integer which enters the assessable income from which the taxable income is calculated for assessment, again a task which cannot be undertaken until the end of the year of income.
The most that could be said is that on 30 June 2012, ABS had an obligation to pay income tax in the future. Such a proposition comes out of what this Court said in Federal Commissioner of Taxation v H (2010) 188 FCR 440 and the authorities therein referred to: at [39]–[40] the Court said:
[39] It is common ground in this proceeding that unless and until an assessment is made and notice is served of that assessment, income tax is not due, and nor is it payable before the date fixed by s 204 of the ITAA 36: Clyne, per Mason J at 16 (with whom Aickin and Wilson JJ agreed), Brennan J also agreeing on this issue at 24. Nor does it appear to be in dispute that unless and until an assessment is made and notice is served of that assessment, the Commissioner has no legal right to recover an amount of income tax. On the other hand, the correctness of these statements is no impediment to a conclusion that prior to the making of the assessment and service of notice of that assessment, the taxpayer had an obligation to pay income tax in the future, and that obligation came into existence on 30 June of the year of income in respect of which the income was derived.
[40] The obligation is no less an obligation because the Commissioner cannot, until he makes an assessment and serves notice of that assessment, enforce it as a debt due and payable. So understood, the obligation to pay income tax “matures as a debt due and payable after assessment”, to use the words of the Full Court in [Deputy Commissioner of Taxation v Jones (1999) 86 FCR 282] at 290, but that maturation does not deny the existence of the obligation prior to the making of the assessment and service of notice of that assessment: see [Deputy Commissioner of Taxation v Kavich (1996) 68 FCR 519] at 527 per Lockhart J.
But even if ABS had, on 30 June 2012, an obligation to pay income tax in the future, that does not trigger a retention obligation for the liquidators as trustees in terms of s 254(1)(d) for the simple reason that, as at that date, no tax “is … due” in the sense of “owing”, by them, and no tax “will become due”, in the sense of “owing”, by them. As noted in [2] above, it was common ground that the assessment when it did finally issue, would issue to ABS.
This brings me to a concession made by senior counsel for the Commissioner during the course of argument. He conceded at T20/15-34, correctly in my view, that the words “as is sufficient to pay tax which is or will become due” referred to tax due or to become due by the liquidators (trustees) in their representative capacity. In other words, it did not embrace tax due, or to become due in the future, in the sense of owing, under an assessment of ABS.
CONSIDERATION AND ANALYSIS
In CIC Insurance Ltd v Bankstown Football Club Ltd (1995–1997) 187 CLR 384 at 408, the plurality, with whom Gaudron J relevantly agreed, said:
[T]he modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy.
More recently, in Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 293 ALR 257 at [39] the High Court said:
“This court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text” [Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; 260 ALR 1; [2009] HCA 41 at [47]]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.
The context in the present case includes Div 6 of Pt III of the 1936 Act, headed “Trust Income”. So much was recognised over 80 years ago in the observations of Rich and Dixon JJ in Howey v Federal Commissioner of Taxation (1930) 44 CLR 289 when considering the intersection of s 31 and s 89 of the 1922 Act, the former being a predecessor of Div 6 of Pt III of the 1936 Act. At 294, their Honours said:
If, therefore, sec. 31(1) does apply to his case, it does not confer upon the appellant a right to be separately assessed in respect of income expended on each child. On the other hand, if sec. 31(1) does not apply, we think the appellant cannot obtain a separate assessment in respect of income expended on each child. A question, it is true, does arise, whether, if sec. 31(1) does not apply, there is any provision which warrants any assessment upon the appellant as trustee. Sec. 89 enables the Commissioner to assess a trustee, but it is not easy to say precisely in respect of what income. It is perhaps doubtful whether it operates to impose upon a trustee any liability for tax which is not provided for by sec. 31, and it is by no means clear what is the relation between sec. 89 and sec. 31. Possibly, so far as it affects trustees, sec. 89 should be regarded as a “collecting section and not a taxing section,” to borrow the language used by Lord Parker in Drummond v. Collins [(1915) A.C. 1011, at p. 1019]. If so, it does no more in respect of trustees than provide machinery for carrying out the provisions of sec. 31. This view would mean that, unless the appellant could be assessed under sec. 31, he ought not to be assessed at all; and that is a position which is neither covered by his objection nor relied upon by the appellant, and is opposed to the view of the Commissioner.
(Emphasis added.)
That s 254 is a “collecting section” and has no operation to render a trustee liable to be assessed to tax if the trustee is not otherwise liable to be assessed under the provisions of Div 6 of Pt III of the 1936 Act, comes out of two more recent High Court authorities.
In Union-Fidelity Trustee Co. of Australia Ltd v Federal Commissioner of Taxation (1969) 119 CLR 177, Barwick CJ, at 181, expressed the view that Div 6 of Pt III “is the exclusive source of liability of a trustee to pay income tax upon the income of the trust estate”. That view has never been questioned.
In Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 at 11, the High Court said:
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 [cf. Fermanis v. Cheshire Holdings Pty. Ltd. (1990), 1 W.A.R. 373]. But, where the trustee is liable to be assessed to tax, the assessment imposes a debt to be borne by the estate [Deputy Commissioner of Taxation v. Brown (1958), 100 C.L.R. 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”.
(Emphasis added.)
That s 254(1) is a collection provision facilitating the collection of tax, rather than one facilitating the assessment of a liability to tax, informs both the context in which the words “the tax which is or will become due” are to be construed and the outcome of that construction. They contemplate an existing liability or a state of affairs of which it can be presently said a liability will arise in the future.
Prior to the issue of an assessment to the liquidators (trustees), in reliance on one or more of the provisions of Div 6 of Pt III of the 1936 Act referred to in the passage from the judgment of the High Court in Prestige Motors extracted above, there can be no tax which “is … due” by the liquidators, in the sense of “owing”. Nor, prior to that time, can it be said that tax “will become due” in the sense of “owing”, by them because if one or more beneficiaries are presently entitled to the whole of the income of the trust estate, the trustee or trustees will have no liability. The words, “will become due”, in the sense of “owing”, predicate nothing less than certainty, and that, in my view, cannot be predicted prior to the issue of a relevant assessment; but if it can be predicted on the facts of a particular case, e.g., Harmer v Commissioner of Taxation (1991) 173 CLR 264, it cannot be predicated on the facts of this case where it was common ground that the assessment, when it did issue, would issue to ABS.
Finally, I feel compelled to express my concern at one consequence, on the facts of this case, if the Commissioner’s construction of s 254(1)(d) were correct. It would have a “cascade effect” in that the amount required to be retained prior to the end of the year of income could never be income to which ABS was presently entitled. In other words, it would actually create a liability to tax for the liquidators where otherwise none would exist.
The appeals must be dismissed with costs.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate:
Dated: 8 October 2014
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 100 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: AUSTRALIAN BUILDING SYSTEMS PTY LIMITED
ACN 094 238 678 (IN LIQUIDATION)
Respondent
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 101 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: GINETTE DAWN MULLER AND JOANNE EMILY DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LIMITED ACN 094 238 678 (IN LIQUIDATION)
Respondent
JUDGES:
EDMONDS, COLLIER AND DAVIES JJ
DATE:
8 OCTOBER 2014
WHERE MADE:
BRISBANE
REASONS FOR JUDGMENT
COLLIER J:
I have had the advantage of reading a draft of the judgment of Edmonds J. I respectfully agree with the reasons and conclusions of his Honour, and concur in the order which his Honour proposes.
I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate:
Dated: 8 October 2014
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 100 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: AUSTRALIAN BUILDING SYSTEMS PTY LIMITED
ACN 094 238 678 (IN LIQUIDATION)
Respondent
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 101 of 2014
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
BETWEEN: COMMISSIONER OF TAXATION
AppellantAND: GINETTE DAWN MULLER AND JOANNE EMILY DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LIMITED ACN 094 238 678 (IN LIQUIDATION)
Respondent
JUDGES:
EDMONDS, COLLIER AND DAVIES JJ
DATE:
8 OCTOBER 2014
PLACE:
BRISBANE
REASONS FOR JUDGMENT
DAVIES J:
I have had the advantage of reading a draft of the judgment of Edmonds J and respectfully agree with his Honour’s reasons and conclusion, save in one respect. I do not think that it is a complete answer to the Commissioner’s case that it was, apparently, common ground that any assessment would issue to the company.
Section 254(1) of the Income Tax Assessment Act 1936 (Cth) (“ITAA36”) applies to liquidators because liquidators are deemed to be “trustees” for the purposes of the taxation laws: see definition of “trustee” in s 6(1) of the ITAA36. As the consequence, a liquidator is “answerable as taxpayer” in respect of income, profits or capital gains derived by the liquidator in his or her representative capacity (s 254(1)(a)), and is required to lodge returns of such income, profits or capital gains and liable to “be assessed thereon”, but in his or her representative capacity only (s 254(1)(b)). Section 254(1)(d) then requires the liquidator to retain “out of any money” which comes to the liquidator in his or her representative capacity, sufficient money to pay tax that “is or will become due” in respect of such “income, profits or gains”, and s 254(1)(e) makes the liquidator personally liable for the tax payable to the extent of the amount retained, or which “should have been retained”. On its proper construction, it seems to me that the section contemplates that in the circumstances where the section is engaged, a post appointment tax liability, if any, will be assessed to the liquidator in his or her representative capacity, rather than to the company.
That said, the analysis serves in my view to confirm that any personal liability falling upon the liquidator arises only if, and where, an assessment has issued, and there is an amount of tax that “is or will become due” in the sense of “assessed as owing”. For the reasons expressed by Edmonds J, the Commissioner’s construction of the phrase “is or will become due” as it is used in s 254(1)(d) is to be rejected. In my view the primary judge was correct to hold that the reasoning in Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 in respect of the proper construction of s 255 of the ITAA36 applies equally to the proper construction of s 254, and that s 254(1)(d) is to be read as referring to an amount of tax that has been assessed.
I certify that the preceding three (3) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate:
Dated: 8 October 2014
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