Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation); Commissioner of Taxation v Ginette Dawn Muller and Joanne Emily Dunn as Liquidators of Australian Building Systems Pty Ltd (In Liquidation)

[2015] HCATrans 217

[2015] HCATrans 217

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B19 of 2015

B e t w e e n -

COMMISSIONER OF TAXATION

Appellant

and

AUSTRALIAN BUILDING SYSTEMS PTY LTD ACN 094 238 678 (IN LIQUIDATION)

Respondent

Office of the Registry
  Brisbane  No B20 of 2015

B e t w e e n -

COMMISSIONER OF TAXATION

Appellant

and

GINETTE DAWN MULLER AND JOANNE EMILY DUNN AS LIQUIDATORS OF AUSTRALIAN BUILDING SYSTEMS PTY LTD ACN 094 238 678 (IN LIQUIDATION)

Respondent

FRENCH CJ
KIEFEL J
GAGELER J
KEANE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 8 SEPTEMBER 2015, AT 10.14 AM

Copyright in the High Court of Australia

____________________

MR J.T. GLEESON, SC, Solicitor‑General of the Commonwealth of Australia:   May it please the Court, I appear with MR N.J. WILLIAMS, SC and MR M.J. O’MEARA, for the Commissioner of Taxation as appellant in each matter.  (instructed by McInnes Wilson Lawyers)

MR S.L. DOYLE, QC:   May it please the Court, I appear with MR M.S. TRIM, for the respondents in each matter.  (instructed by Thomson Geer Lawyers)

FRENCH CJ:   Yes, Mr Solicitor.  I think you have been advised that the Court does not need to hear extended oral argument on the first two matters.  Of course, if there are matters you want to draw to our attention, you are perfectly free to do so.

MR GLEESON:   Thank you, your Honours.  I will deal with those first two grounds only briefly.  They are the ones that are not contested by the respondent.  They are, of course, important in their own right because as they stand they are the ratio of the majority judgment in the court, and the Commissioner of Taxation at the moment is bound to administer the Act in accordance with them, and so we do seek to have the error pointed out in those two grounds.

The Court has before you a case on the construction of section 254 of the 1936 Income Tax Act. It is a provision of some antiquity. It first came into the Commonwealth statute book in the 1915 Income Act as section 52 – may I pause to observe, section 52 of an Act which had only 65 sections and 22 pages.

FRENCH CJ:   Pity they could not stick with that.

MR GLEESON:   It is a slim and lovely looking document, your Honours. Prior to that, it came into the colonial law – we think, in particular, through the 1895 Victorian Act which is the closest parallel to it, and before that the 1799 and 1842 English Acts. Your Honours, I propose to go immediately to the construction we propound in respect to section 254 and the differences we seek to urge between section 254 and 255. I will do that first, then to the three grounds of appeal and then, finally, say a little bit more about the history if it is convenient. If your Honours have section 254, it applies to every agent and every trustee.

FRENCH CJ:   What sense is “agent” being used?

MR GLEESON:   In the defined sense of the Act where the definition has changed a little over time but a person – not just acting for a principal but, as we see from the provisions, a person who will be deriving income on behalf of the principal and that link between the derivation and the agency means probably there needs to be some form of instrumentality in the earning of the income.

So clearly an agent appointed, for instance, as a broker with a general authority to sell shares as thought fit would be caught and would be deriving income in a representative capacity, but there may be other cases where there is not the relevant derivation such as money merely being received by a solicitor on a sale transaction and paid on to the client may not attract the derivation. “Trustee” is being used in the defined sense in section 6 which has a broad reach including, relevantly to this case, liquidators and receivers. The key entry point of section 254 which is, of course, missing from 255 is the concept that the agent or trustee is to be:

answerable as taxpayer for –

doing everything required to be done by the Act in respect of the income – I will just stick with income for the moment – derived by the trustee or agent in the representative capacity – and then there is a further limb:

and for the payment of tax thereon.

Now, that is the key command which is the entry point and also governs, as it were, the whole section, that if you take on the role of agent or trustee you will be answerable as taxpayer for doing everything necessary under the Act and for the payment of tax.  That command, we submit, is relevant in understanding that the critical obligations under paragraph (d) are obligations that cut in from the moment the income is derived and not merely from a later date of assessment.

Paragraph (b) makes paragraph (a) more specific in that the answerability extends to making the returns and being assessed thereon and to that extent the trustee or agent is bound to make all due inquiries and keep all due records to ensure proper returns can be made.  So there is no scope for an argument as per the respondent that it would be impracticable or difficult for the trustee or agent to know the relevant affairs of the principal or beneficiary.  You are bound to make the inquiries you need to make so proper returns can be lodged and so a proper assessment can be made.

It then goes on with two explanations or qualifiers.  The first is that it is in a representative capacity.  That is important because it indicates that, although this is a liability being imposed on the trustee or agent, it is always in a representative capacity.  In that sense it is secondary or ancillary and its purpose is to ensure that the tax is paid; tax which ordinarily but not always will be primarily liable by another person, the principal or the beneficiary.

I will come later to Webb v Syme in this Court which discusses the concept of this as a secondary liability.  Then there is the premise that each return shall “be separate and distinct from any other return”, and we would read that as meaning distinct from any other return as trustee of a different trust estate and also distinct from any return of the trustee in his or her own capacity.

Of course, what follows from that is that the focus is on a separate return which will relate to the income derived in the particular representative capacity and will therefore take into account any expenses referable to the earning of that income in that capacity and that is relevant to a matter raised by the respondent which is well, how is the trustee supposed to deal with expenses.  The answer to that is that the trustee takes into account expenses which relate to the particular capacity to determine what the tax is and then paragraph (c) deals with deceased estates.

Then coming to the critical paragraph (d), it starts with an element that it is both an authorisation and a requirement to retain certain money, and one of the matters discussed by your Honour Justice Gordon in the RCF matter in relation to 255 is that insofar as this is an authorisation, it is regulating the relationship between the trustee and the beneficiary so that what might otherwise be a duty simply to meet a proper demand by a beneficiary to pay over money is intercepted by this authorisation and requirement which comes in at a superior level.

While much of our submissions have emphasised a purposive approach that this provision is about protecting the revenue and ensuring that the tax gets paid, at another level it is protective of the trustee in ensuring the trustee has the legal protection to say to the beneficiary, I cannot pay you yet because I have to first set aside the money to meet the tax.

That is, of course, highly relevant in a case like the present where the liquidator realises the asset – has some money in the bank after expenses and the liquidator says, “I would like to simply distribute this money to creditors; I will put in a tax return in due course”.  There will be an assessment in due course but, by the time that happens, all the money has gone. 

As we would commend paragraph (d), it is designed to stop that very thing happening because it intercepts the money and says to the liquidator, you are authorised and required to take steps to ensure that the money is there to pay the tax.  So, that is the first part of (d).  It then says it is an authority and requirement to retain, from time to time – those words “from time to time” go back to some of the earlier statutes we will come to – and they mean what they say.  It is a continuing obligation which will operate over a period of time and over money which may come to the trustee at various points in time – money which comes in the representative capacity and then the critical words “so much as is sufficient to pay an identified tax matter”.

FRENCH CJ:   You put a bit on that word “sufficient”, do you not?

MR GLEESON:   “Sufficient”, yes, that it does not require precise equivalents.  It requires sufficiency to pay.  The closest case we have found on that is, again, the RCF decision in the Full Federal Court.  The facts, of course, were a little different but it indicated, we would submit, that sufficient does not equal precise equivalent in that case because of a foreign exchange conversion.  By definition, the trustee could only do his or her best to identify a sum of money in Australian dollars which would pay tax referable to a gain made in a foreign currency.  So, “sufficiency” has that notion.

We then come to the critical words “tax which is or will be come due in respect of the income”. In section 254, we submit, the word “due” there is used in one of its conventional senses of owing and the result is it covers tax which is due, that is, is owing and, therefore, has been assessed and it also covers tax which will become due in the sense of will become owing after due assessment.

One of the issues where the parties are apart – and it raises, perhaps, a philosophical question about the Act – is we contend for the proposition that as I derive each dollar of income it can be said that I have an obligation to pay tax.  The amount of the obligation will not be crystallised until a future date and it will depend upon assessment to know the precise amount of the debt.  But it is relevant to speak of an obligation having arisen from the moment of derivation of income.

So there are, perhaps, three stages in the sequential process.  The first stage is derivation which triggers a relevant obligation.  The second stage is assessment which triggers a sum being due – it triggers a debt.  Then the third stage is due and payable which under the present Act, I am told, is 21 days after the moneys become due upon assessment.  The purpose of (d) is to, in effect, intercept the money at the earliest of those points in time, that is, from derivation.

Now, it is not a full proprietary remedy in the sense we might understand that in the law of equity, but it has a quasi‑proprietary flavour to it in the sense that it is treating the income, as it were, as an object which, having been derived, should first meet the claims of the revenue by way of tax, and only then be made available to the principal or beneficiary for their own use.  That is the reason why the obligation cuts in on derivation.

If the respondent’s position is correct, the obligation is not cut in until the tax has been assessed.  On that view of the world, it has an incredibly narrow operation in time.  It probably only has an operation in a 21‑day window after the income may already have gone.  On the respondent’s view, if I am the present liquidators what I do is I realise the asset.  If I have a claim from creditors to distribute the asset and it is otherwise proper, I do so.  I distribute it.  In due course, I might put in a return and I might be assessed, but by the time I am assessed, the money has gone.  But it is only when I am assessed that the obligation cuts in, and it then cuts in for the 21‑day period between assessment and it becoming due and payable.  That, we would submit, is not the reach of paragraph (d).

Then, in paragraph (e), the personal liability of the liquidator is tied to the amount which has been retained or should have been retained under (d):

not be otherwise personally liable for the tax.

That is why I have put that it has not a strict proprietary flavour, but a quasi‑proprietary flavour, because the liquidator should perform the duty, and if the liquidator performs the duty, there will be a fund of money available to meet the tax.  If he or she does not perform the duty then personally liable out of their own assets.

There is then an indemnity under (f), and paragraph (h) gives the Commissioner remedies against attachable property in the control or management of the agent or trustee, as the Commissioner would have had against other taxpayers.  Again, there is a link between (h) and (d) and (e) because the idea is to establish the retention from the moment of derivation, and it would provide a foundation for other remedies under paragraph (h).

Could I just then emphasise, before I leave 254 for the first time, that in paragraph (d), going back to that, the sufficiency requirement is attached to the tax:

which is or will become due in respect of the income –

It is the income derived by the agent or trustee under paragraph (a) that is the subject of the retention obligation under paragraph (d). That is, the very income for which the trustee is answerable as taxpayer. So that is the critical point of intersection for this section, which is a very different one to section 255.

Your Honours, in section 255 ‑ and we accept the construction in Bluebottle – the critical entry point is different.  First of all, there is no requirement of answerability, and that is of itself almost enough to indicate that one would not translate automatically concepts from one to the other.  There is no requirement of answerability.

Secondly, the persons that it targets are a narrower and different group of persons to 254. For section 255 it is enough that you are a receiver of money belonging to a non‑resident who has derived income from an Australian source, and then there is a further limb. So, the person doing the derivation in 255 is the non‑resident, the non‑resident derives Australian‑sourced income and it is the non‑resident’s tax which is the subject of this provision. The only intersection between that and the person targeted in 255 is simply the concept that you have received money of such a person.

Now, a classic example of 255 would be a bank.  A non‑resident derives Australian‑sourced income and at some point has money in an Australian bank.  This section targets the bank.  Under paragraph (a), as the Court emphasised in Bluebottle, the subject is the tax which is “due and payable by the non‑resident”, meaning tax which has been assessed and fallen due for payment by the non‑resident.  So that is cutting in at the third of the three points identified.  The non‑resident has been subject of assessment and tax is now payable, so 21 days has elapsed.  But more is needed under paragraph (a) because there must be a requirement by the Commissioner on the controller to pay the tax of the non‑resident.

So, if we have tax due and payable by the non‑resident and if we have a requirement by the Commissioner, then the obligation in paragraph (b) cuts in. While the language superficially appears similar to section 254(1)(d), it has these critical differences. Firstly, as the Court adverted to in paragraph 84 of Bluebottle, the point of intersection here is between the authority and requirement in (b) and paragraph (a) which is the tax due and payable by the non‑resident, whereas under section 254, as I have indicated, it is a different point of intersection. The next thing is that although 255(1)(b) goes on to use familiar language, what it is says at the end is:

so much as is sufficient to pay the tax which is or will become due by the non‑resident -

and I emphasise those last words “by the non‑resident”.  So, the obligation in (b), when it is tied back to paragraph (a), can only cut in after there is tax due and payable by the non‑resident.  It cannot cut in in advance of that point in time and that is because its purpose is to ensure that tax gets paid out of a fund of money.

The importance of that is that whereas I have indicated that the respondent’s argument on 254 means it has a window of operation of only 21 days which may achieve very little, 255(1)(b) does not have that vice because once you have tax due and payable by the non‑resident, let us assume that is $100 assessed today and that is due in 21 days’ time, once that has happened, provided you have the requirement under paragraph (a), the receiver is then under a continuing obligation as and when the receiver gets control of money of the non‑resident to retain it to pay the non‑resident’s tax.

So one could well have a case where the tax is assessed today to the non‑resident, payable 21 days, a bank account is opened in a year’s time, a requirement is made on the bank and money comes into that bank account over a period of time.  As it comes in, it progressively is to be retained and used to pay the tax.

So on the court’s construction in Bluebottle one can see that not only is the point of intersection different but the operation of the section, as I have said, has that work over time. It achieves the purpose ensuring that the non‑resident’s tax is paid but does it in quite a different manner to what the respondent would be contending for in respect of section 254.

The many cautions that we do not pick up words from one section and transliterate them to another really have particular force here when one understands that the logic of the plaintiff’s transposition is to produce an effective 254 which renders it almost devoid of work. One can then see at the end of section 255 that it follows some of the language of section 254 but does not have, for instance, the remedies provision of 254(1)(h).

GAGELER J:   Is it uncontroversial that a bank falls within the concept of a person having control?  It may be.

MR GLEESON:   It may be, your Honour, I am not sure.  We thought that was a simple case that would come within it.  Maybe there is room for argument because it is a chose in action; it is the money of the non‑resident.  Subsection (2) has a little to say about it, a:

person who is liable to pay money to a non‑resident shall be deemed to be a person having the control of money –

Maybe that covers the bank.

GAGELER J:   Yes.

MR GLEESON:   So, your Honours, in a nutshell, although a lot more can be said and a little more might be said, that is the construction the Commissioner propounds for these two provisions, and in terms of where that sits with the authorities, the first case I would ask the Court to go to is Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1.

The judgment of Justice Mason is conventionally treated as the lead and definitive judgment in this case on the concept of due.  Of course this is discussed in the concept of section 218, but the critical passages are between pages 15 and 17, and really the discussion was whether “due” here meant owing or whether it meant owing and payable and the Court took the view, which we can see perhaps at the bottom of page 16, “that income tax is due when it is assessed” and then becomes payable on a date to be fixed thereafter. 

On page 17 his Honour recognised that there were some views that tax could be regarded as due at an earlier date and Justice Gibbs had favoured that view in Mendonca (1969) 15 FLR 256 at 259 and his Honour noted that approach could be traced back to the majority decision in Commissioner of Stamps v Western Australian Trustee (Mortimer Kelly’s Case) (1925) 36 CLR 98, and I will come to that case a little later on.

His Honour said that Mortimer Kelly’s Case could be explained on the ground that it was more about the concept of a debt within the Western Australian probate legislation and, of course, what the case said was that if a person died and they had earned income at the date of death that could relevantly be treated as a debt under the probate legislation even though the assessment had not yet issued. 

Now, I would submit that Mortimer Kelly’s Case is still good for this proposition that it illustrates the truth of the first of the three sequential propositions that I put – that, namely, at the point that income is derived, it can be said that tax is owing even though the amount of tax is still to be assessed and the fact that it is owing is the premise upon which it could be regarded as a debt under probate legislation.  That is the equivalent explanation for the decision in the Full Federal Court that we have referred to in Jones which is that where a person enters bankruptcy, a bankruptcy notice can be issued in respect to tax payable on income earned prior to the date of bankruptcy even though it has not been assessed.  The reason for that, again, is that tax can be regarded as owing.

FRENCH CJ:   In what sense is “owing” being used there – in the sense of legal liabilities accrued or some more generic sense?   

MR GLEESON:   In the sense that Justice Mason has adopted, it is that the original obligation to pay tax on income derived has matured into a crystallised legal obligation.  A debt is now incurred so it is at stage two of the three stages and then payment is to occur a certain number of days thereafter.  So, we see in this case at about point 6, his Honour concluded:

For all these reasons I consider that “due” in par. (i) of s. 218 means “due” in its primary sense, not “due and payable”.

Chief Justice Gibbs would have taken a broader view of “due” and that is consistent with his earlier views, perhaps, and that is found on page 9.  At about point 2, his Honour drew some support from section 17 of the 1936 Act which is now replicated in the 1997 Act providing:

that, subject to the Act, income tax at the rates declared by the Parliament is levied and shall be paid upon the taxable income derived during the year of income by any person.

His Honour took from that the tax was due in the sense of “owing”, once the income had been derived.  So, that is the broader view which would – in answer to the your Honour the Chief Justice’s question – regard “owing” as being satisfied once you have derived the income.  That, we accept, is not the majority view in the case.  For the purpose of resolving the present problems, we can rest comfortably with Justice Mason’s view.

I draw attention only to Justice Gibbs’ view to show the sense in which there is much wisdom in the view that in the broadest sense of obligation, an obligation has arisen from the moment income is derived.  So, it would not be correct to take the respondent’s view which is that when the liquidator sells the building and makes a profit, he has no obligation under the Taxation Acts.  That does not give proper effect to the scope of the Act.

So, your Honours, that is what we would commend to the Court from Clyne’s Case.  If I could then go to the RCF decision, Federal Commissioner of Taxation v Resource Capital Fund IV LP (2013) 215 FCR 1. The critical paragraphs of this judgment for today’s purposes are paragraphs 11, 25, 38 and 55. Paragraph 11 in Chief Justice Allsop’s judgment is important in explaining that sufficiency does not require precise equivalence and that, we would submit, can be applied to the present context.

In your Honour Justice Gordon’s judgment, paragraph 25 is of importance because your Honour there is adverting to the critical paragraph in Bluebottle ‑ paragraph 84 ‑ which drew the distinctions between the forerunner to section 254 and the forerunner to section 255, and that is the paragraph at Bluebottle which was not adverted to by the trial judge in the present case, or by Justice Davies.

Now, of those three differences which are there mentioned, the first two differences flow through to the present legislation and they are the critical ones for today’s purposes, the first being that the answerability concept is present in 254 but not 255, and the second being that the authority and the requirement in the forerunner to 254 relates to the tax due in respect of the income, that being the income derived by the trustee or agent in the representative capacity, as opposed to 255 where it links to the tax due and payable by the non‑resident.

Then if I could go to paragraph 38, this is the paragraph I adverted to earlier that section 255(1)(b) – and the same is true for 254(1)(d):

is a facultative provision.  It facilitates the payment of –

certain tax, and absent this provision ‑

the retention by the controller of money belonging to that non‑resident taxpayer (in the face of a demand . . . would be unlawful.  The controller would have no answer to a demand for payment by the non‑resident taxpayer against the controller.

So here is where the provision illustrates its second purpose of giving the controller or the trustee or the agent the answer to a claim by the non‑resident or the principal or the beneficiary to pay out the money and thereby prevent the tax being paid.  Then finally paragraph 55 indicates that each of these provisions should be read carefully and discretely and not simply by picking up language of another.

Your Honours, that is the second authority we go to on this critical question.  The third, if I could go to Federal Commissioner of Taxation v E.O. FarleyLtd (1940) 63 CLR 278 – the Court will see from page 287 at about point 3 that the provisions in that case, the Sales Tax Assessment Act, bore some similarity to the current provision in question.  It is stated that:

“where a company is being wound up the liquidator of the company shall give notice to the commissioner within fourteen days after the approval of the shareholders for the winding up has been given, or the order for the winding up has been made, and shall set aside such sum out of the assets of the company as appears to the commissioner to be sufficient to provide for any tax that then is or will thereafter become payable.”

So the similarity in those concluding words, “any tax that then is or will thereafter become payable”.  The critical passage of Chief Justice Latham is on the next page, 288, the last paragraph, and Chief Justice Latham observes two aspects about that provision I have just read out.  The first is that:

the duty of the liquidator is to set aside such a sum out of the assets of the company as appears to be sufficient to the commissioner to provide for tax.  The statutes do not require the commissioner to specify some precise amount of tax as being due.

Now, the respondent argues that comment can be distinguished from this case because the express language of the provision is “to set aside the sum as appears to the Commissioner to be sufficient”, and the respondent says “appears” introduces subjectivity which is not in our provision.  However, Chief Justice Latham goes on to say -

Indeed, the sections relate not only to tax that then is payable but also to tax which “will thereafter become payable.”  It is, therefore, evident that the sum to be set aside in pursuance of the statutes may prove not to be the sum that is actually payable.

As we would read his Honour, he is drawing support both from the concept of what appears to be sufficient, plus the concept of tax which is then payable and which will thereafter become payable to indicate that this setting aside process may produce a sum of money which proves different to be the sum actually payable.

FRENCH CJ:   This is a case, really, about involving an estimation process by the Commissioner, is it not?

MR GLEESON:   Yes is the answer to that, but I seek to draw attention to the second part of it, which is similar to our language; “it is due or will thereafter become payable”. His Honour seems to place reliance on both those elements, and we would submit that he is using the “is or will become due” in the sense that we contend for in section 254.

Your Honours, the next case – and there are perhaps three others to complete this part of the submission – is the authority I mentioned, Commissioner of Taxation v Jones (1999) 86 FCR 282. This is the bankruptcy case and the Full Court, commencing at paragraph 21, identifies the role of section 168 in the 1936 Act and that is the provision we rely upon which indicates there is an ability in the Commissioner to bring forward assessments to any time of the year and that is the provision which the Court refers to at the end of paragraph 22 which can be used:

to assess a taxpayer who has become bankrupt in respect of the taxable income of that taxpayer in that part of the financial year which ends with the bankruptcy and separately in respect –

to the period of the bankruptcy.  In paragraph 23 they make clear:

that the debt made payable by that assessment would be obligation incurred before bankruptcy, but which became payable thereafter.

So that this is the confirmation that you can speak of an obligation to pay tax arising as the income is derived, even though you will need some later process such as assessment to crystallise the amount of the debt and at paragraph 34, the court hammers that point home.

FRENCH CJ:   There is a continuing obligation, is there not, imposed by 254(1)(d) which, if one is to give it content by reference to the amount, must be defined by reference to some minimum amount that is going to be “sufficient”?  I suppose the question is how do you determine whether at any given point of time the agent or trustee has complied with that obligation given, for example, we are talking about income, that a deduction may arise later in the accounting period.

MR GLEESON:   Well, there are two ‑ ‑ ‑

FRENCH CJ:   This is not about adjustment.  This is just how do you determine whether the obligation has been complied with.

MR GLEESON:   Well, firstly, the trustee is required to know all the relevant facts concerning the representative capacity that he or she has taken on, and because it is a separate return one is looking at what will be the marginal rate applicable to that trustee or agency relationship.  So if it is the liquidator in this case and the corporate tax rate is 30 per cent, if the liquidator sells for a profit of $1 million what the liquidator is required to do is to say, well, are there any deductions that can properly be made against that $1 million - solicitor’s fees, agent’s fees and the like.  Yes, I make all those, so if the world stays the way it is, the net capital gain will be $950,000.

I then set aside 30 per cent, if that is the tax rate, of $950,000 and if that be the only transaction for the whole year, I have complied with my obligation and then the point at which the obligation bites is the point at which time – the time has occurred at which otherwise there would be a payment away.  So, in one sense, you do not have to, every day of the year necessarily, keep redoing your calculation but you do have to, at any time when either a demand is made upon you to distribute or you would otherwise choose to distribute.

FRENCH CJ:   To ensure compliance you have to err on the side of caution?

MR GLEESON:   You may have to err on the side of caution.

KIEFEL J:   Would the question ultimately become, if there was an issue about it, that arising under (e) should have retained in the circumstances, given the trustees knowledge or imputed knowledge?

MR GLEESON:   Yes, it would, your Honour.  The respondent says, unless you can have absolute certainty at each point in time, the section does not bite and you can only have absolute certainty after an assessment.  There are a couple of answers to that.  In one sense, the assessment crystallises the debt.  The assessment may itself, of course, be challenged and the debt may adjust if you have a successful challenge.  So, what the assessment does is give you greater certainty.  It gives you provisional certainty but not necessarily final certainty.  But, even prior to the assessment which is where the case really cuts in, we would submit, that if you take on the role of trustee or agent you are bound to do these calculations at any point where you would otherwise pay away money and that is for good reason – that that is the means to ensure the tax gets paid.

The alternative view is, prior to assessment, it is almost a solemn farce because you can pay away the money.  You can put in a return.  You can be assessed upon it but there is really no point because the money is gone.  Then, the only time the section works, on the respondent’s view, is in the 21‑day window, assuming the trustee or agent, for whatever reason, has voluntarily set aside sufficient money.  So, the end logic of their position is, well, the section bites for the 21‑day period – prior to that it is a matter of choice.

KIEFEL J:   On the construction for which you contend, the trustee distributes on the basis of an assessment of liability before notice of assessment is received.

MR GLEESON:   If the trustee chooses to distribute or is required to distribute under a demand by the beneficiary – yes, it has to do it on that basis.  So, prudence may require, firstly, very careful calculations but, secondly, do not distribute perhaps until there is an assessment if there is doubt about the money you are distributing.  So, if you are a liquidator of the company and you sell the building, the very thing you do not do is what the liquidator asserts the right to do here which is simply distribute to the creditors.  You do the calculation.  You set aside the money.  You receive the assessment.  Yes, it is only after the assessment that then the debt crystallises and you then pay the tax as such.  But you have, as the trustee, what I submit your Honour Justice Gordon referred to in RCF, you have the command of the statute that you are to do something different to what might be done merely as between trustee and beneficiary.

KIEFEL J:   So that is the protective element you were referring to earlier in your submissions?

MR GLEESON:   That is the protective element, yes.  Your Honours, the other authorities in the chain were – I then wish to go to ‑ ‑ ‑

FRENCH CJ:   Sorry, just before you move on, can I just come back for a moment to the scope of the term “agent”?

MR GLEESON:   Yes.

FRENCH CJ:   Just so I understand the full – in section 6 we have “agent” – well, it is not defined, it just says:

this Act applies to some entities . . . that are not agents in the same way as it applies to agents –

and there is a reference forward to section 960–105 of the 1997 Act.  It says:

applies to an entity as if the entity were an agent of another entity (the principal) –

et cetera and that then picks up the definition of “entity” which is a variety of animals.  That does not, in any sense, define or limit the concept of “agent”, does it?  One has to look outside the Act to find the scope of that term?

MR GLEESON:   The answer is yes, the general law.  As I said earlier, also brought in by reason of the concept of representative capacity which matches the general law of concept but have I been given a task for a principal whereby I am doing derivation of income and that is the general concept.  What that means might be fact specific but – I think that is as much as we can offer by way of assistance on agency.

If I could ask the Court to go to Commissioner of Stamps (WA) v West Australian Trustee, Executor and Agency Co (1925) 36 CLR 98, this was the decision I mentioned earlier about the intersection between the Commonwealth Income Tax Act and the Western Australian Probate Act.  If I could just give the Court three page references:  104, 115 and 118.  They are in the majority judgments. 

On each of those pages, when the Justices are discussing the general provisions of the Commonwealth Act, they specifically advert to the forerunner to section 254 which was section 89 of the 1922 Act in coming to their conclusions that there is an obligation arising from the moment of derivation of income. Now, at 104, in the judgment of Chief Justice Knox, that is briefly referred to in the last sentence of the first paragraph. It is one of the groups of provisions which lead to the conclusion in the first sentence of the next paragraph that:

the Income Tax Act imposed on every person who during the year . . . derived from sources in Australia income which was “taxable” according to the provisions of the Assessment Act an obligation to pay income tax at the rate declared. 

The position is then stronger in the judgment of Justice Higgins at page 115 in the second paragraph.  His Honour commences by noting that:

It is true that . . . income tax becomes due and payable thirty days after service of a notice of assessment; but the obligation to pay when assessed lay on the testator previously. 

In support of that proposition, his Honour goes to section 89 and references paragraphs (a), (b), (c) and (d) and then specifically sets out some of the language from (d), which is 254(1)(d), and says this:

he is required to retain out of moneys which came to him as executor sufficient to pay the income tax “which is –

and then it is his Honour’s emphasis –

or will become due,” and he becomes personally responsible if he distribute the estate among the beneficiaries without providing for the tax (sec. 89(e) and (f).

Now, that we believe to be the closest we found to a judgment which has grappled with the present problem and we submit that the emphasis that his Honour has given us in this very compressed paragraph is in fact answering the present question.  Coming back to your Honour Justice Kiefel’s question, his Honour is really saying, well, you do this calculation in respect to the tax which is or will become due and you are responsible if you distribute among the beneficiaries without making provision for that tax.

On our reading of his Honour’s judgment, you do not wait until assessment.  You do this and you do it because – the reason you do it is that the obligation to pay when assessed, as his Honour says, lay on the testator.  Previously that is from the moment of derivation.  Now, I trust we are not over‑reading the paragraph, but that is the submission we put in respect to it and it is, we would submit, instructive.  The final judgment is Justice Starke and he at the end of page 118 drew support from section 89 for the very same conclusion.

Your Honours, the last of the cases on this primary point is Joshua Brothers v Federal Commissioner of Taxation (1923) 31 CLR 490. This case is relevant both to the primary point in the appeal and to the other grounds of the appeal because it is a good illustration of how the equivalent to section 254 can intercept with the primary taxation provisions of the Act. The facts can be seen on page 491 and were fairly simple that the liquidator realised the assets of the company for a profit and at fact 6 put in a return, and at fact 8 the Commissioner assessed the taxable income of the company at a certain amount, the liquidator paid that amount and then caused to be lodged a “notice of objection”.

Now, on our construction, this was a liquidator conforming to section 254 or its then equivalent by setting aside sufficient money, making sure it was there, and then the money was paid subject, of course, to objection. The question which was framed by paragraph 13 on page 492 was whether this balance of money that the liquidator realised on the sale was to be treated as “taxable income of the company”. The argument put for the taxpayer ‑ perhaps was an ambitious argument, it is at the foot of that page – was that it was:

no more than the conversion into money of certain assets of the company existing at the date of liquidation.

Presumably to argue it was not on the income account at that time.  Now, that argument was rejected, but what is significant is how it was rejected.  In Chief Justice Knox’s judgment at page 495, his Honour commences at the top by discussing the duties of the liquidator and then at about point 3 says:

It is clear that under the Companies Act whatever the liquidator does in realizing assets he does as agent for and in the name of the company, and, as my brother Isaacs pointed out during the argument, a liquidator is included in the designation of “trustee” by sec. 3 of the Income Tax Assessment Act 1915‑1918.

Now, pausing there, that would be an example of the matter raised by your Honour the Chief Justice of the general law being adverted to, to ascertain whether there was an agency relationship, and the liquidator under general law being treated as an agent came within the forerunner to section 254 and also came within the trustee limb caught on both grounds. His Honour then went on. The liquidator is:

therefore, made answerable by sec. 52 –

that is, section 254 –

for the payment of income tax on income derived by him in his representative capacity.

Now, one can see at the end of the judgment on that page the conclusion that the profit derived by the liquidator was the proceeds of a business carried on by the company, and so was income of the company within the meaning of the Act. That seems to be an assessment to the company. It is the company’s liability to pay, but the equivalent of section 254 is being used, at the very least, as a machinery mechanism to make sure you get to that result, so the liquidator being made answerable for what is the company’s income tax, in effect, sets that money aside so that the company can meet its obligation in due course.

We would submit this case has two relevances. On the first issue, it is an example of how section 254 works and that it is designed to cut in on derivation. On the other grounds of the case, it is an example of why the majority in the Full Court got those grounds wrong, because on the majority in the Full Court’s reasoning, if a liquidator cannot be assessed under the “taxation of trust” provisions in Division 6 at Part III, then section 254 can never have application, whereas here the Court is telling us that that is the very situation where it can have application.

FRENCH CJ:   That term “answerable”, by the way, does one read that in any way other than that he or she shall be required to do all the things that a taxpayer is required to do, et cetera, or would be required to do?

MR GLEESON:   That is probably the concept of it.  It is anything and everything that the taxpayer ‑ ‑ ‑

FRENCH CJ:   It is a global thing, and then you cut into the particular ‑ ‑ ‑

MR GLEESON:   Yes.  It was the very term chosen in the 1799 Act to get this provision going ‑ ‑ ‑

FRENCH CJ:   Well, it has a certain quaintness about it.

MR GLEESON:   It has a quaintness about it, but it has a comprehensiveness that anything and everything you can find that the taxpayer can and should be doing you must do.  In that sense, it is an important peremptory command.  So that is Chief Justice Knox.  On the next page, 496, in the judgment of Justice Isaacs, in the middle paragraph, in rejecting Mr Latham’s argument, his Honour said:

Sec. 52 of the Income Tax Assessment Act with respect to every “agent” and every “trustee” enacts that (a) “He shall be answerable as taxpayer . . . in respect of the –

and then it is emphasised –

income derived by him in his representative capacity . . . and the payment of income tax –

and again it is emphasised –

thereon.

Then there is a reference to the definition of “trustee”, and then his Honour says this –

The intention of the Act was indubitably to reach income of a company “derived” during the regime of a liquidator.

Now, that would appear to be reading section 52 or 254 as working together with primary taxing provisions in the Act to achieve this purpose, which is to make sure if income is derived during the regime of the liquidator or agent or trustee, the Act reaches it and that income tax gets paid and that cannot be achieved on the respondent’s construction. Finally, in the judgment of Justice Rich at page 501, about 10 lines down, his Honour says:

and, reading sec. 52 of the Income Tax Assessment Act with sec. 3, not only does it appear that the Act contemplated the taxation of income arising during winding up, but –

his Honour then goes on to make a further reference. So, we would submit, this is a critical case in understanding the comprehensiveness of section 254 as well as disposing of the other grounds of appeal.

Your Honours, that is what I wanted to say on the first issue, as it were.  Could I then just briefly deal with the grounds of appeal as such and in the notice of appeal at page 116 we had separated out as what are called grounds 2 and 3, two points, the first being perhaps an instance of the second.

The first point is that the majority erred in concluding that if you are a trustee but you are not the trustee of a trust estate within Division 6 of Part III, then section 254 can have no application to you. The next ground, which is a larger point, is that section 254 can never apply to an agent or trustee unless you can point to some other provision of the Act which imposes the liability to tax.

The reason that second ground is important is that, particularly with agents, the primary provisions of the Act do not comprehensively tax agents as such and so in many cases it will be section 254 that becomes the leading provision which both taxes and assesses the agent. So, just to deal briefly with the paragraphs of the judgment that relate to those two grounds, it is really on pages 100 through to 102, and just in bullet point form, in paragraph 24, when his Honour placed reliance upon Justices Rich and Dixon in Howey v Commissioner of Taxation (1930) 44 CLR 289, it is to be observed that what their Honours said was (a) obiter, (b) expressed without final conclusion and (c) was expressed without reference to the Court’s earlier decision in Webb v Syme which I will come to which would have put a different complexion on the matter.

The next observation is in paragraph 26, what Chief Justice Barwick said in Union‑Fidelity (1969) 119 CLR 177 was said without any discussion of section 254 at all. Next, is to paragraph 27, what the Court said in Prestige Motors (1994) 181 CLR 1 at 11 was said, obiter, without argument in a case where there was a trust estate and where the trustee was liable under section 99A. Whether what the Court said in Prestige Motors has any application in a case like the present was not there addressed.  Having referred to those as the key authorities, his Honour’s key reasoning then is in paragraph 28:

That s 254(1) is a collection provision facilitating collection of tax ‑

that is true as far as it goes but his Honour then says ‑

rather than one facilitating the assessment of a liability to tax –

We would disagree with that.  Then in 29, the key error, that:

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 . . . there can be no tax which “is . . . due” –

or ‑

“will become due” –

by the liquidators.  What his Honour there has, with respect, overlooked is the decision of this Court in Bamford which indicates that, ordinarily, a liquidator will not be the trustee of a trust estate. 

Your Honours, the third ground of appeal then concerns the error in transposing the conclusions in Bluebottle from section 255 to section 254. That rests on the judgment of the trial judge and of Justice Davies’ judgment at page 106. Her Honour, in a fairly short judgment, has said at paragraph 35:

the primary judge was correct –

to apply Bluebottle from section 255 to section 254. So, if I could just go then to Bluebottle (2007) 232 CLR 598. The critical paragraphs are between 72 and 84. At 72 the Court considered a construction of section 255 uninstructed by authority that its obligation was:

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 . . . 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 –

So, already at that point, there is the critical intersection that the Court is relying upon that I referred to earlier.  The Court comes back to that at 75 to 76 and at 77 says:

The description of the tax as “due and payable” –

That is by the non‑resident –

necessarily presupposes that an assessment has been made.

So at that point section 255 is already dealing with the different subject matter. Then in 78 the Court says:

When s 255(1)(b) refers to “the tax which is or will become due by the non‑resident” it must be read as referring to an ascertained sum.

Now, that is because of its intersection back to tax due and payable by the non‑resident which by definition has been ascertained through the assessment process.  So the intersection point between the provisions is different.  Now, the respondent would seize on passages such as paragraph 79 and say, well, that is the same vice in our construction of 254:

Until the tax payable by the non‑resident has been assessed it is not possible to say more than that there may be tax due by the non‑resident.  It is not possible to say that tax is due or that tax will become due.

But what is critical is the Court is saying all of that in respect to the entry point of tax due and payable by the non‑resident, which is the different entry point to section 254, and that is what leads the Court to the conclusions expressed at paragraphs 80, 81 and 82 where the Court identifies the true point of intersection between the two provisions. At that point the Court discusses some of the history and the critical paragraph – 84 – noting the differences described by the Court as radical differences are there set out, and it is the first and second of those which remain through to the current scheme.

Your Honours, I was then just going to conclude with one or two observations on the history and on Webb v Syme in the context of that history. Your Honours should have a bundle of historical legislation which is select. We had commenced at page 2 with section XCI of William Pitt’s Income Tax Act 1799 and one of the aspects of this history is that the intersection between the 254‑type provision and specific provisions for tax in trust estates has varied over time.  In the model of the 1799 Act which we see in section XCI, we have the concept of the trustee or agent or so on where that person has income chargeable by virtue of the Act and:

shall be assessed . . . to contribute any Sum . . . in respect of such Income, then . . . it shall be lawful for every such Person . . . out of such Annual Income as shall come to his or her Hands . . . to retain so much and such Part of such Annual Income as shall from Time to Time be sufficient to pay such Assessment.

So a couple of observations there.  Firstly, under the model in this Act this concept of retention was linked to the case where the trustee was acting for a person under disability or a case which we would now regard as there being no other person presently entitled to the money, that is, where the true receipt and control of the money was in the trustee’s hands.

Under this scheme, it was an authorisation to retain as opposed to an express requirement, but the language of the retention, which is the origin of our current language, was broad and comprehensive.  It was:

to retain so much and such Part of such Annual Income as shall from Time to Time be sufficient to pay such Assessment –

Now, as we would read that provision from the very beginning, particularly these references to “annual income”, “sufficiency” and “time to time”, it contemplated a world in which the trustee would be setting aside the tax as the year went on.  If the income was rent from a property, the trustee would be setting it aside and, necessarily, the trustee would be making an estimation of what the assessment would be at the end of the year.

That is not entirely surprising, because under the scheme of the 1799 Act, the assessors would deliver to the householders notices requiring the householders to deliver lists which identified the residents, which identified non‑residents and persons under disability, and the householder had to deliver a statement – this is section 38 – identifying the sum which the householder proposed should be contributed for such other persons for whom he was in actual receipt of income.

So the process was one whereby the householder would be identifying in due course the amount that was proposed to be contributed, and that would be considered by the assessors and the commissioners.  The concept that the householder would be doing these calculations as the annual income was being received is there from the outset.

Your Honours, just before I come to page 4, which is the Victorian antecedent of the present provisions in 1895, we have provided the Court separately with the one authority we found on the intervening English Act, which is the 1842 Act, and that is the case of Williams v Singer (1921) 1 AC 65. The model of the 1842 Act was similar to the 1799 Act, so this gives us some indication of the construction and the purpose of the Act. I will just indicate to the Court two passages that are of some assistance. The first is in Viscount Cave, commencing at page 72. It is the first full paragraph where what is said is:

that the person charged with the tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income which it is sought to reach.  The object of the Acts is to secure for the State a proportion of the profits chargeable, and this end is attained (speaking generally) by the simple and effective expedient of taxing the profits where they are found.  If the beneficiary receives them he is liable to be assessed upon them.  If the trustee receives and controls them, he is primarily so liable.  If they are under the control of a guardian or committee for a person not sui juris or of an agent or receiver for persons resident abroad, they are taxed in his hands.  But in cases where a trustee or agent is made chargeable with the tax the statutes recognize the fact that he is a trustee or agent for others and he is taxed on behalf of and as representing his beneficiaries or principals.

So, we see here, as I say, the intersection between what is now Division 6, Part III and what is now section 254 and the essential object was always to ensure that the tax was paid and, so far as possible, tax the profits where they are found. So the concept was very much at this stage if the trustee had the true control of the income or profits, such as in the case of legal disability, the beneficiaries, the trustee could be assessed and would set aside the money during the year to do so.

Your Honours, with that context, returning to the bundle, the 1895 Victorian Act made two critical changes to the English scheme. That can be seen on page 7 of the bundle at section 12, and one can see section 12 is starting to look rather similar to section 254. Section 12(1)(a) has the concept of answerability, similar to the current provision, and passing over (b), paragraph (c) is the authority and requirement – so it has now become a requirement as well as an authority:

to retain from time to time in each year out of any money which comes to such agent or trustee as such agent or trustee so much as is sufficient to pay the tax for the current year in respect of any income subject to the tax ‑ ‑ ‑

FRENCH CJ:   Nice and simple.

MR GLEESON:   Nice and simple.  It has improved on the 1799 language, although one can see that ‑ ‑ ‑

FRENCH CJ:   It has not been improved on by 254.

MR GLEESON:   ‑ ‑ ‑ 254 in relevant respects is doing the same thing, that is the submission.  But one can see fairly clearly here the concept of not only sufficiency but it is to pay the tax for the current year and so that is very much like the concept of the annual income in the 1799 Act, and we would submit it is tolerably clear here that this obligation cuts in on derivation and operates during the year.  It does not await assessment, and that is possibly even clearer from paragraph (d) which is the personal liability.  It is while the tax remains unpaid two things happen.  One is you alienate the income, so that is the narrower case.  If you alienate the income out of which you should have been setting aside the tax, you are personally liable.  Then the second case is where you dispose of:

any fund or money which comes to him after the tax is payable from or out of which fund or money such tax could legally have been paid –

and that is an even broader ‑ ‑ ‑

FRENCH CJ:   They would have the same model of statutory liability on assessment as ‑ ‑ ‑

MR GLEESON: Yes, yes. So, to complete that scheme, on page 9, section 15, that is the only other provision for assessment of trusts in the 1895 Act. Two things are important about this. The first is that in this world there was no separate Division 6, Part III‑type world. This is the entire world for the taxation of trust and agent relationships and what it tells us is that at least in its origin, provisions like section 254 were true leading provisions. They were not merely some secondary collection type provisions.

They were the provisions by which one would ensure that the trustees or agents paid the tax and so your Honour asked me earlier about the concept of answerability.  It indicates in this scheme, answerability really is the most profound and fundamental responsibility for doing anything and everything to make sure the tax is paid on your agency or trustee relationships and this is a world away from certainly some of the comments of Justice Edmonds and Justice Collier.

Now, passing over the New South Wales 1895 antecedent, one come at pages 16 and 17 to the 1915 Commonwealth Act and it is clear that the Victorian Act has been used as the model, particularly section 52, but a process of simplification of language has gone on in paragraph (e). So, if one takes paragraph (e) on page 18 and compares that back to paragraph (c) on page 7, this is where the critical change has occurred. It is again an authority or requirement, it is again from “time to time”, it is again “out of any money which comes to him in his representative capacity so much as is sufficient”, and what the drafter has done is sought to use less words to achieve the same result by saying:

sufficient to pay the income which is or will become due in respect of the income -

and in a sense that has captured the concept of the Victorian Act, sufficient to pay the tax for the current year in respect of any income subject to the tax and it may be that if one thinks of an Act coming in in 1915 in the context of the war, there would have been a delay until later in 1916 when the first assessments were made.

GORDON J:   There may be a  more straightforward approach and that is that under the Victorian Act that dealt with the current year, but of course the liability may have been in the subsequent year and the reason why the obligation extended was not just to the current year but subsequent years when the tax became payable.

MR GLEESON:   Yes, your Honour, yes, it may well be explained by that as well.  So, if one is seeking to capture comprehensively the tax on the income, whenever the process of assessment will occur, this is actually pretty good language to do so.  “Is or will become due” captures a broader concept.  It is certainly not a narrower one.  If anything, it is a broader attempt to say, irrespective of when the assessment occurs and that legal debt crystallises, you are to retain it from time to time.  So, that is one change and the second change in is in paragraph (f) with the personal liability.  That compares to paragraph (d) on page 7.  There are two limbs.  It is:

after the Commissioner has required him to make a return, or while the tax remains unpaid –

you dispose of any fund out of which income tax could legally be paid.  So, the two limbs are expressed slightly differently to Victoria and the subject of it has picked up the second subject of the Victorian paragraph (d) too.  Where I sought to go with this is that the first submission is that once we have identified 1895 as the immediate precedent, the purposes being achieved by the 1915 Commonwealth Act are as least as broad – perhaps even broader. 

The second is that, as between 254 and 255, one can see that 254 is the leading provision. It was there, first, in 1915 and 255 emerged in 1918 in the form of the new section 52A on page 24. It may be that in the context of the last year of the war, attention was given to expanding the work of 254 into the particular territory of 255. But what appears to have occurred is that they are targeting this slightly different problem, the controller of the non‑resident deriving Australian‑sourced income. The draftsman is using some of the concepts of 254 but modifying them to deal with that different problem.

So, we see in section 52A(a) already the concept that is later discussed in Bluebottle of, we must have tax due and payable by the non‑resident and we must have a requirement by the Commissioner on the controller. So when one gets to paragraph (c), which is the equivalent to the current provision in section 255, far from saying let us take what the Court said in Bluebottle and it must be thus in section 254, it is really the opposite that is occurring, that language which had a particular role within 254 has been picked up in the 255‑type provision – different context, different problem, different solution. So this confirms it is quite unsurprising that what appears to be similar language has a significantly different result.

Your Honours, perhaps, finally I had mentioned Webb v Syme (1910) 10 CLR 482. This case, again, has a relevance to the various grounds of appeal. It is a discussion of the 1895 Victorian Act plus the 1896 Victorian Act and it concerns how they fit together. If the Court goes immediately to Justice O’Connor’s judgment at page 508 at the top, one can see the context of 1896 Victorian Act. That Act responded to a decision of the Supreme Court in Commissioner of Taxes v Everitt 21 VLR 481, which found that there was a gap in the 1895 Act in the manner in which it caught “income from personal exertion”.

In order to cure that gap, the 1896 Act included provisions which are like Div 6, Part III.  That is, they expressly said in these cases the trustee can be assessed; in these other cases the assessment would be at the level of the beneficiary.  That is what the Court was discussing in this case and one of the curiosities is that in the 1915 Commonwealth Act it picked up the 1895 Act, did not include any provisions like the 1896 Act, but did so later in the 1918 Act.  So, from 1918 onwards, the Commonwealth provisions broadly bear the structure of the Victorian 1895 plus 1896 Act.

Now, with that background, the discussion therefore is of general relevance as to how provisions like Div 6, Part III intersect with section 254, and could I just draw attention to these parts? In Chief Justice Griffith at page 490, at about point 5 when his Honour is analysing the 1895 Act, he comes to a provisional conclusion:

that the obligation is a personal one imposed upon individuals, quâ individuals –

and he then asks ‑

Is there, then, anything in the Act which forbids this conclusion?

Mr Starke in what is described as an “ingenious argument” relied upon section 12 of the 1985 Act, that is the 254‑type provision.  The provision is then set out, and his Honour concludes at the foot of the page:

So far from these provisions showing that the tax is payable by a trustee as the immediate recipient of the money, they appear to me to point strongly to the opposite conclusion, namely, that the primary liability to income tax falls upon the beneficial recipient of the money as his income, and that the liability of the trustee is only secondary, and contingent upon the beneficiary failing to pay the tax for which he is liable.

His Honour then goes on to discuss the 1896 Act.  So we see here a little inkling in the purpose of 254 that even though the goal ultimately is to get the tax from the beneficiary because that is where the primary liability lies, the purpose of the 254‑type provision is to make sure that happens.  In that sense it is secondary, but it can only achieve that purpose if the obligation cuts in on derivation.  Justice Barton discussed the same point, and at page 497 at about point 5 when he is discussing the 1985 Act said:

Sec. 12 is important in this connection.

Then he refers to the concept of answerability, and perhaps this comes back to your Honour the Chief Justice’s question:

responsible, for everything necessary to ensure the assessment of the income which is the subject of his trust . . . and for paying the tax . . . This in effect excludes any primary liability . . . but gives the Crown recourse to him in aid of the enforcement of the Act and for ensuring the payment which the beneficiary should make.

So, to achieve that purpose it must, as an obligation, cut in on derivation and it could not await mere assessment.  Then over the page at the top, when discussing the personal liability clause, his Honour says:

This provision is in aid of [the retention clause] and imposes the personal liability, apparently, as a penalty for not keeping a reserve of income or funds in hand to satisfy the tax, until it is seen whether it is paid by or recoverable from the beneficiary –

So, in relation to your Honour Justice Kiefel’s earlier questions, you retain the money.  If you do not retain enough, you suffer this as a penalty and you are meant to keep the fund until you see whether the beneficiary can pay.  If the beneficiary ultimately pays the tax directly, at that point you can release the funds through the trust.  It is a fairly clear statement here of the broad purpose of the provision which would not be achieved, on the respondent’s view.  At about point 6, his Honour says:

Reconciling the terms of the two sections –

that is sections 12 and 15 of the 1895 Act –

the word “chargeable” . . . merely enables the Commissioner to resort to the trustee to prevent any risk of the beneficiary’s income escaping the payment legally due.  It is primarily the beneficiary who is to pay; but the amount of the tax is to come out of his income in any event—if necessary, before it comes to his hands.

Now, that is the strongest statement of purpose that we see in this case. The purpose is to prevent any risk of that income escaping the tax, and one sees here that the quasi‑proprietary flavour of the provision – that income is there to meet the tax, and the tax should be able to be paid out of that income. Therefore, section 254 must have the work that we commend.

So that is Justice Barton, and in Justice O’Connor’s judgment at page 507, in addition to what I have been to earlier, his Honour says at the top:

both sections make it plain that such persons are not under ordinary circumstances made liable to pay the tax; they are made answerable for its payment.  In the case of agents and trustees that appears plainly from sec. 12 . . . which imposes on them obligations in respect to the income of the principal or cestui que trust . . . with the object of ensuring payment of the tax and of making them effectively answerable for its payment ‑

That seems to say that the reason you are declaring the trustee or agent answerable is to ensure that you do make the beneficiary or the principal answerable for the payment.  A little further down, about point 5, his Honour says that –

both principal and agent, trustee and cestui que trust may be assessed at the same time in respect of the same income.  The tax is not payable twice over, but the assessment of the agent and trustee is necessary in order that everything may be in order for obtaining payment of the tax by them in the event of the principal or cestui que trust failing to pay.

On that basis, again, contrary to Justice Edmonds, one can have an assessment directly under 254 as well as under provisions such as Division 6, Part III.

Finally, in Justice O’Connor at page 510 there is a broad statement of the purpose of the provisions which matches Justice Barton.  At about point 2 - he is here speaking of section 12 of the 1896 Act.  So:

On the contrary, the whole section would appear to be in aid of the general scheme of the original Act as I have interpreted it in the earlier part of this judgment, namely, that the beneficial recipient of the income is in general the person primarily bound to pay the tax, the liability of the trustee as trustee being ordinarily secondary, his person liability arising only under special circumstance -

those being where there is a person under disability or no present entitlement, and his Honour says –

The object of sec. 12 is evidently to make more effective the system of securing payment by a representative taxpayer who may have the income to be taxed actually in hand or under his control.

So, on that view, the 1896 Act which introduced the equivalent of Division 6, Part III, was only to further achieve the purposes which were already being achieved by the equivalent to section 254. One can then see through this glance into history that, not only does section 254 lead section 255, but it has a fundamental role which co‑operates with Division 6, Part III, rather than being some mere gap‑filling mechanism which has little work to do. Certainly there is nothing in Webb v Syme which would support the narrow scope for section 254 that the respondent would contend for. If your Honours please, they are our submissions.

FRENCH CJ:   Thank you, Mr Solicitor.  Yes, Mr Doyle.

MR DOYLE:   Your Honours, the issue, as you heard, is one of construction of section 254 of the Act. We do not propose addressing any submissions in relation to grounds 2 or 3 in the notice of appeal. There are three matters broadly that we will take you to, to support our construction. The first is the language of the section.

There are of course various aspects of the language which are unclear but, in our submission, it points to the construction for which the respondents contend and, in particular, the key words which define the retention obligation in subsection (1)(d) which are to retain “sufficient to pay tax which is or will become due” requires, in our submission, identification of the amount of that tax and the certainty, as we put it, that it is or will become due.  That means, upon an assessment, a sum is due and will be payable at a certain time and that certainty, that is, the knowledge that there is a sum sufficient to pay tax which is or will become due is absent on the construction for which the Commissioner contends.

The second thing we will point to are some real difficulties in applying the section if it is to be construed as the Commissioner contends. Finally, obviously we draw support from this Court’s construction of section 255 in the decision of Bluebottle to which you have been taken. Recognising there are differences between the two sections – and we will come to them – the differences affect other aspects of the operation of the sections but do not, in our submission, affect the retention obligations which are contained in subsection (d) of our section or in section 255(1)(b).

Our friends have taken you through the sections, which makes my job a little easier, but can we ask you to go again to section 254 because the chapeau does extend to every agent and every trustee? I will, for convenience, refer only to agents but it encompasses both.

Whilst the present case concerns a liquidator, and liquidators have some powers and so on, the scope of the section is much broader – broader, indeed, than perhaps our learned friends would put it because it is concerned with an agency, not only by which the agent might be said to derive some income, profit or gain, but an agency by which the principal may derive that income, profit or gain by virtue of the agent’s agency. 

That is relevant because it seems to be assumed against us, on the Commissioner’s construction, that the agent will know of the amount, indeed, the receipt of the income, profit or gain when the section contemplates it might be something derived by his agency but by someone else.

The apparent objective of subsection (1)(a) you have been taken to is to make the agent answerable for a range of activities which are imposed by the Act including, ultimately, a payment obligation which is expressed in terms of being – and I will leave some words out:

answerable as taxpayer . . . for the payment of tax thereon. 

Some later subparagraphs modify the impact of that but the general effect of subparagraph (a) is that the general taxation obligations of the Taxation Act are imposed on the agent in respect of the income profit or gain in the same way as they would for the principal taxpayer.

What this subsection does not do, though, is to create any greater obligation on the agent than that on the taxpayer.  In particular, in terms of the payment obligation it imposes, the taxpayer is not obliged to pay tax prior to tax being assessed and there is nothing in this subsection which would justify construing it to impose such an obligation on the agent.

Subsection (b) modifies, in a sense, subsection (a).  It makes it clear that the return to be lodged is to be agency specific - confined to this agency and separate from others.  It is, however, contemplated to be a return of the kind which is otherwise known to the Act.  It does not create a new kind of return.  The kind of return which is contemplated by the Act is typically an annual one and typically one which requires you to bring to book all of your assessable income.  Take off your allowable deductions to arrive at something upon which tax is, in fact, payable – the taxable income. 

In the course of our learned friends’ submissions, we understood them to say the language of the section is apt to describe a process and as I derive each dollar of income – “I” being the agent in this case – there is no obligation to prepare a return as I derive each dollar of income.  The obligation which the Act contemplates, as I have said, is typically one on the aggregate of income, profit, gain and other things, assessed at the end of the year by a process which leads to a taxable income.

KIEFEL J: Do you rely upon any notion of a sequence being set up in section 254(1) – that is, the making of returns and the receipt of assessment before one comes to (d)?

MR DOYLE:   Not really, your Honour.  It is plain that subsections (a) and (b) intend to impose a raft of obligations which could arise throughout the course of the year - to maintain records, for example, to be subjected to audit, to answer information requests and so on, which otherwise you may not be responsible to respond to, but the section contemplates you will be, as if you were the taxpayer in respect of these things, and they can occur at any time.  The return concept, though, is plainly one which arises, as I say, absent the exercise of some eccentric power by the Commissioner to require it earlier, which occurs after the year is at an end and in respect of the totality of the income, profit, gains et cetera, in that year.

I will pass over subparagraph (c) because it does not seem to bear upon the questions that your Honours have to consider and we turn then to subparagraph (d) and I will come back if I may later to deal with what our learned friends have said about the significance of the word “retain” and the significance of the word “sufficient”, but those expressions have to be read in the composite phrase, the subject matter of the obligation of which is something which is “sufficient to pay tax which is or will become due”.

Now, we accept that the word “due”, indeed our friends have, is ambiguous and our friends have taken you to Clyne’s Case.  I was not proposing to go back to it unless it would assist your Honours but that of course was a case which was concerned with a very different question, whether, for the purposes of section 218 of the Act, tax which had in fact been assessed could be said to be not due because the time for payment had not arisen and naturally the court concluded that it could be said to be said to be due; it had been assessed, even though the time for payment had not arisen.

Now, we are here concerned with a different expression, that is, “sum of tax which either is or will become due” and that, in our submission, is not concerned with the possibility that tax or tax of a particular amount might become due.  The Commissioner urges that the expression “due” means owing or will become owing and advances it really in this form - I think the philosophical debate our learned friends mentioned to you that, to take this case, a gain is made on the sale of property, the retention obligation is enlivened immediately at the point of derivation it is said because of some underlying taxation obligation, but at that point, the nature of the taxation obligation is a wholly different one.

It is, in respect of income, profits and gains, an obligation to include them in the assessable income at the end of the period and the product of that, together with other things, may mean tax is payable so that at the point of derivation one can say that tax statutes broadly impose an obligation to bring that sum to account at some stage, to include it in a return.  But you can only speculate or make predictions with more or less degree of accuracy as to whether tax is to be paid in respect of those sums.

FRENCH CJ:   Now, the retention obligation only relates to money which comes to – talking about the agent for the moment - in his or her representative capacity.  It does not in terms extend to all money derived by the principal by virtue of the agency, which is subject to the answerability obligation under (a).

MR DOYLE:   True.  It is maybe both broader and narrower in a sense, but it captures money, whatever its source, that comes to the agent, even if it is unrelated to the income profit and gain which is obtained.  The assumption which is put against us in a sense is that the agent has received the income profit and gain and knows what it is and can deal with it.  But it is obliged to deal with money, whatever its origin, which comes to it if there is a sum which is otherwise captured by the operation of the section.

An agent who sells my property on terms which the settlement is to take place without the agent’s intervention might never know that it is in fact settled, would never receive the money, has obligations under section 254. If I separately give that agent money to pay tax, for example, in respect of another transaction, or just to do something else with it, that other money would become captured by the operation of subsection (d). It is that money out of which a sufficient sum has to be retained to meet the tax which is or will become due or payable.

That, in fact, answers one of the points that my learned friend said, that the construction for which we contend has a very narrow window of opportunity for its operation, only 21 days.  That is not so.  It can operate forever, because it operates in respect of any money that might come to the hands of that agent to satisfy the obligation once the obligation exists.  The premise that the construction for which we contend robs the section of its operation is misplaced.

KIEFEL J:   On your construction, a trustee would be entitled to hold back distribution till assessment.

MR DOYLE:   I am sorry?

KIEFEL J:   On your construction, a trustee would be entitled to withstand demands for distribution until an assessment had been received.

MR DOYLE:   A trustee would be required by the Act, and then if required, authorised to withhold distribution once an assessment has been made, even before it is payable, on our construction.  Now, that having occurred, that would be true of any future distributions – that is, assuming in year one, that obligation is created to retain the sum, a distribution the following year would be money which is in the hands of the trustee by virtue of its agency for these purposes, and it would be obliged to withhold out of that money sufficient to pay the prior year’s assessed tax, if it had not been paid, and so on forever until that obligation is discharged.

In respect of subparagraph (d), our point is a simple one.  It requires that the certainty of tax is or will become due, and at the point of derivation, the nature of the obligation which the Acts impose is of a different character to one that this section contemplates, which is to identify a sum to be paid in respect of that tax.  I will come back later to deal with some of the things which are said against us in respect of that, but can I just briefly note subparagraph (e)?

KIEFEL J:   You do not seem to place much weight upon it, or do you?  It is a personal liability.

MR DOYLE:   It does a number of things.  It creates the personal liability and it creates an exoneration of any other liability, both of them by reference to the retention obligation.  Now, we do place this reliance upon it.  Subparagraph (a) which otherwise speaks of being answerable “for the payment of tax thereon” which, as we have said in respect of a taxpayer only arises after an assessment, whatever its scope in terms of the imposition of a personal liability on the agent has to be read subject to the exoneration contained in subparagraph (e) because subparagraph (e) both imposes the personal liability and exonerates for the balance, but beyond that, your Honours, is probably nothing of great moment.

Could I move to the difficulties which exist if one approaches the construction of the section as urged by the Commissioner?  It is one of uncertainty or lack of definition and it arises in a number of ways and I have to really give you an example in a sense.  It may be possible to identify where an agent makes a sale if a gain has been made and it may even be possible in some instances to identify its size, but that is not always so.

Now, a liquidator, as we have said, has statutory powers and can compel ultimately information to be provided to it. It takes a long time often. The Commissioner has urged though in its written submissions that the agent under section 254 would necessarily know the size of the income, profit or gain and that is, in our submission, not correct. To know that there is a profit or a gain requires you to know the cost and that would not be something that would be necessarily known to many agents. We have given you some examples in our written submissions. But it would be easy to imagine an agent appointed to sell someone’s products who would not be told the principal’s margin; would not be told what it is that when the proceeds are received is a profit, gain or income at all.

FRENCH CJ:   Does that suggest that in order to meet the obligation or the answerability requirement under (a), any agent has to have arrangements with a principal which enables the agent to meet those obligations?

MR DOYLE:   One would think such an agent should, and one of the difficulties with reconciling any construction of this section is that it imposes an obligation on the agent to be answerable to do things which would be outside its knowledge, perhaps not outside its knowledge ultimately but, your Honours, ultimately what the section does though is curtail the personal liability by reference to the retention obligation.  So the difficulty in satisfying the obligations under (a) to be answerable for the various things the Act imposes is deliberately cut down by Parliament when it turns its mind to what do we make the agent personally liable for?  That, in our submission, is a recognition of the difficulty to which we have referred.

It has cut down the personal liability of the agent in circumstances where it is difficult to understand why it did on the construction urged against us, but on our construction it makes perfect sense because there is going to be a series of circumstances in which the receipt of an income, profit or gain would be unknown to an agent.  The size of it would be unknown.  Parliament has made the personal liability of the agent contingent upon dealing with money after you can say a sum of tax is or will become due, which means after an assessment.

FRENCH CJ:   What is the sanction for failing to comply with (1)(b), making a return?

MR DOYLE:   I cannot answer that, your Honour.  I am sure there will be some ‑ ‑ ‑

FRENCH CJ:   It is not confined to a personal liability.

MR DOYLE:   No, but it is possible that you make one which just declares the whole of ‑ the truth is you do not know what the answer is.  It is possible one has to go about it by putting in the most, but that cannot be a basis for expanding the personal liability which is deliberately confined by subsection (e).

KEANE J:   Mr Doyle, under (1)(a), the agent – or I should ask you, do you accept that under (1)(a) an agent is obliged to make a return of the income, profits or gains “derived by the principal by virtue of” the agency?

MR DOYLE:   Yes, that is what the language contemplates.

KEANE J:   So that the language that we have just looked at contemplates that, if we assume that Parliament does not contemplate the impossible, contemplates that the agent will be in a position to make a meaningful return in respect of the income, profits or gains “derived by the principal by virtue of” the agent’s agency.

MR DOYLE:   Parliament contemplates they will be able to make a return, but what is required is that it is possible as an anterior step to identify an income, profit or gain.  So that the anterior step is the obligation exists only in respect of something which is an income, profit or gain, so that that itself presupposes some knowledge of something.  What the Parliament has not done is to impose an obligation on the agent to be answerable for the payment of whatever is produced from that.  It has imposed – a personal liability for the payment is expressed in narrower form, and it is expressed in narrower form which is confined by the words to which we refer:

to pay tax which is or will become due –

That requires for its operation the certainty of that tax and, in our submission, that can only be, for reasons I am taking your Honours to, upon an assessment which tells you of the taxes that will become due in respect of that sum.  Parliament has not visited personal liability on the agent for failure to be able to comply with (b), or failure to comply with (a).  It has visited personal liability in a narrower form, and it is that ultimately with which we are concerned here.

Your Honours, returning to the difficulties to which we say the Commissioner’s construction of points, it is not the case that all agents will be able to compel the principal to disclose information.  The liquidator can, but not all agents can.  An agent for sale, for example, is generally not able to rely upon the co‑operation of the disaffected principal.  The section also, as we have said, operates where the principal derives the income, profit or gain through the agency, so that it is possible in those circumstances the agent is wholly unaware of the circumstances which would enable you to identify the amount of the income, profit or gain, other than the agent has done something.  There is also uncertainty in the evaluation of the tax.  Tax is paid on taxable income, not on income, profit or gains.  A gain on one sale will be offset in assessing tax by other events, losses or deductions. 

As we said in our written submissions, at the moment of derivation of something on sale 1, you might be able to make predictions about what is going to happen for the rest of the year.  You may be able to contemplate what the likely position will be, but you cannot identify a sum of tax which is or will become due without those things being certain.  Those uncertain future events would be common that the company would continue to – the agency’s business on behalf of the principal would continue to run at a loss for some period or that their other assets which are going to be sold which may produce capital losses.  All of those things have to be known in order to identify the tax which has all become payable, as distinct from the obligation to bring to book as an assessable income, that income, profit or gain.

GAGELER J:   Will there not always be uncertainty, even if you know the precise amount of the tax that is payable in saying that the – in identifying the tax in respect of the particular income, profits or gains?

MR DOYLE:   Probably not, your Honour, because it is to be an agency specific return so that in the simplest cases, where the agent only does one thing and then moves on, that is probably the simplest case.  But where you have got an agency which is ongoing for the whole of the year, in our submission, the whole of the product of that effort throughout the year is to be the subject of the return and gives rise to the subject of this obligation.  One does not stop it after each transaction and try to work out, as our learned friends contend, the derivation that each sale, or the each receipt of rent, or whatever it is, is where they say the obligation arises.

The trouble with such a construction, as we have urged, is you can predict things, but you cannot know what is going to be the tax payable in respect of that.  On the other hand, once it is all finished, you can make a more reliable prediction, a more reliable assessment of the calculation of the tax.  So that impossibility, in a sense, tells against the point of derivation construction which is put against us.  In response to that, our learned friends say a number of things which I should deal with.  The first is to say that the obligation is to retain something.  It is said that the obligation to retain is ambulatory, it is to retain from time to time and arises, as our friends have put it, when the agent is called upon to distribute the moneys to the principal.

Well, it is ambulatory, we would accept that – that is, it does not operate at one moment and then stop, but the language of the section is not limited in the way that the Commissioner contends.  As we have submitted, the section is directed to any money, not simply the income, profit or gain, but any money.  It extends to prevent the agent from applying that money for any purpose, including any intended purpose, which may be something completely different from paying it to the principal.  So that, for example, an agent who has received rental income for a principal could not use it to maintain the property or any other reason much broader than merely meeting a demand by the principal to repatriate the money.

The second thing that it is said aligned to that is that the calculation – putting aside the sufficiency question for the moment – of what has to be retained is to be undertaken in light of the circumstances as they exist from time to time and this is in our learned friend’s reply submissions at paragraph 6.  It is said that as circumstances change, if a loss is suffered later in the year, an adjustment can be made for the amount of the retention.  These are all said to overcome the impossibility of otherwise applying the section in the way the Commissioner contends. 

The language of the statute does not fit that contention.  It is language “to retain from time to time” and our friends want to have it read as if it is said “to retain and release from time to time”.  But even reading it that way does not overcome the issue of imprecision or uncertainty.  The present case can be illustrative of that.  There is a sale and it is said a gain, or there can be a profit on the sale of some business asset.

The Commissioner seems to suggest that one can work out at that moment the tax and you are obliged to retain it but one asks are you permitted to take into account circumstances which, let it be assumed, are very highly likely to occur the next week, that it is known that the business is running at a loss or it is known there is another asset that is going to be sold and it is going to suffer a loss.

On the Commissioner’s approach, it seems to be suggested that you do not take those things into account until they have occurred so that on the Commissioner’s construction it is pretty certain in the language I have used a moment ago, that the sum being retained is, in fact, in excess of the amount of tax which has all become due which, of course, there is no warranting language of the section to justify and, moreover, no utility in that approach. 

If, when the near certainty occurs you can adjust and pay the money out, what is the point of this retention?  My friend says, sotto voce, what if it does not occur?  Well, that is our very point.  One needs to have the certainty and identify the tax which is or will become due, the certainty of what has occurred throughout the year to know what the tax is that has or will become payable without speculation about those things.

The Commissioner’s approach then, really, in our submission, is for a construction which seeks to identify a requirement to retain something which is either uncertain or an estimate or which is predictably in excess of the sum of tax which is or will become duly paid and that is unjustified by the language of the section.

Then it is said that sufficiency is required, not certainty. Indeed, our learned friends in paragraph – if we could trouble your Honours to go to paragraph 7 of our learned friend’s reply submissions where this proposition is advanced, not, we recognise, for the first time, it is said section 254(1)(d) does not require certainty but sufficiency:

sufficiency looks to the adequacy of an amount . . . Section 254(1)(d) requires the agent or trustee to accommodate the uncertainty by retaining an amount that will be sufficient (or adequate) to pay that tax. Section 254(1)(e) gives the agent or trustee an incentive to be conservative -

There are a number of things that we submit are wrong with the proposition advanced in that paragraph, some of which I have not read to your Honours.  The section, of course, is not dependent upon the agent receiving the income, profit or gain at all, the point I have already made.  It can be captured where the money is received by the principal or someone else.  Where the money goes really is a different question to the scope of the operation of subsection (d). 

As to the sufficiency proposition, what has to be certain, in our submission, is that a sum of tax is, or will, become due.  The sufficiency referred to is an amount to be retained out of that money which is held to pay that tax which has already become due.  There is no scope for lack of certainty in the operation of the section as to whether the tax has all become due. 

What is being spoken of, in our submission – in the section where it refers to sufficiency – is, as our friends put it, adequacy for purpose.  I am not sure we would quibble about that.  It would require that out of the money which the agent has, a sum which is no lower than the tax be retained but does not justify holding more, that is, the expression “sufficiency” does not justify a range of outcomes or the section does not contemplate that it will.  It speaks of sufficiency out of the money to pay the tax that has all become due.

The suggestion that the agent can somehow, or is somehow encouraged to adopt conservatism is undoubtedly true on the approach which is put against us.  But the section does not postulate some subjective position by the agent.  The outcome should not depend upon – and the section does not justify an outcome which depends upon – the degree of conservatism adopted by the agent. 

Indeed, given that subsection (e) excuses the agent from personal liability, save to the extent the retention obligation exists, one could easily say there is an incentive not to be conservative because the more conservative you are in the definition of the retention obligation, the greater is the personal liability.  The cases to which our learned friends have taken you on this point ‑ ‑ ‑

FRENCH CJ:   How does the liability to an amount that he or she should have retained work on your construction?

MR DOYLE:   The “should have” presupposes that they have not done it.

FRENCH CJ:   Yes.

MR DOYLE:   In our submission, in (e) the words:

that he or she has retained, or should have retained –

are describing the same figure.  They are not offering different outcomes.  You are obliged to hold X – that is the amount you have retained if you did hold it.  If you have not held it, the amount you should have retained is X.  It describes that part of the money which has come to the agent’s hands by whatever means which is enough to pay the tax which is or will become due. 

So, on our construction, your Honours, upon the assessment being issued which tells you what X is, that is the sum you have to hold and if you do not – either out of the money you then have or the money that comes to you in some future time in your representative capacity the personal liability is imposed. 

KIEFEL J:   Do you mean that “should have retained” in (e) is not intended to require the factual inquiry as to the extent of the knowledge and the decision that was made by the trustee as to what liability might be?

MR DOYLE:   It is, on our submission, the mirror image of the amount – the section imposes an obligation to hold something, and you either do it or you do not.  What is being posited by those two alternatives in (e) are those two options.

FRENCH CJ:   How does that limb of the liability under (e) support your construction?

MR DOYLE:   It presupposes non‑compliance with the – on our construction, there is an assessment issued for $1 million, and the easiest case is the agent has no money at the time, but subsequently obtains some money from its principal.  It is obliged by virtue of the obligations contained in 254(1)(d) then to hold, out of the money it has received, up to X.  Now, the money it has might be less than X, but assume for these purposes, the money it receives is greater than $1 million.  It is obliged to hold $1 million.  If it does not, then it is the sum it should have retained, and it is what is satisfied – that is, defining its personal liability.  It either holds it, or it should have held it.

FRENCH CJ:   The liability under the Commissioner’s construction does not arise before assessment?

MR DOYLE:   Yes, it does.  The liability ‑ ‑ ‑

FRENCH CJ:   In (e), because you do not know what you should have retained on any view until after there has been an assessment, do you?

MR DOYLE:   No.  On the Commissioner’s construction, the liability arises on the moment of derivation.  As soon as you derive income profit or gain by sale, and let us assume you can tell that there is a gain of $2 million, the Commissioner says from that moment on there is an obligation to hold the million.  Now, it also says if ‑ ‑ ‑

FRENCH CJ:   So you are personally liable, there is an ongoing liability able to be ascertained at any particular time during the accounting period by reference to some notion of insufficiency?

MR DOYLE:   Correct, and it goes up and down depending on whether you do well or do badly in continued activities for the principal.  Your Honours, our learned friends have taken you to the relevant authorities on the question of the meaning of “sufficiency”.  We will not take your Honours to them again unless it is of assistance to you, but we wanted to say something about two of them. 

The first is Federal Commissioner of Taxation v Official Liquidator of E.O. Farley Ltd (1940) 63 CLR 278. If your Honours turn to page 287, in the first full paragraph, the relevant section is extracted, “The Sales Tax Assessment Act” et cetera:

provides that “where a company is being wound up the liquidator of the company shall give notice to the commissioner within fourteen days after the approval of the shareholders . . . and shall set aside such sum out of the assets of the company as appears to the commissioner to be sufficient to provide for any tax that then is or will thereafter become payable.”

Our learned friends have taken you to a passage in the reasons of the Chief Justice where that is discussed and they rely upon it for the proposition that sufficiency does not mean precision.  But of course in that section which contemplates the subject of consideration by the Commissioner of a sum, what you are obliged to hold is the sum which he determines is or is likely to thereafter become payable.

Now, there is no element of subjectivity in the language of section 254. The language it uses is one quite the reverse of determining a sum sufficient to pay tax which is or will become due, not the sum – it could have been drafted in a form that imposed the subject of assessment by the agent acting reasonably or indeed assessment by the Commissioner acting reasonably, but it has done neither of those things. So, in our submission, you will find very little assistance in the discussion in this case of the meaning of that provision.

The second case to which our friends took you is the Federal Commissioner of Taxation v Resource Capital Fund IV (2013) 215 FCR 1 again which, in our submission, would be of very little assistance to you. This was a section 255 case, as your Honours know, where this Court had already determined, in a passage I will take you to, what section 255 spoke of is in terms of the sum sufficient to pay the tax which is or will become due, meaning the amount as assessed, and all this case was concerned with was whether a notice could be given requiring the retention of money which was expressed in a foreign currency, so that the Court determined in that case, with respect correctly, that you could work out the sum which was equal to the tax which had been assessed by applying the then tax rates.

If as a result of movements in the tax – I said “tax”; I meant to say exchange rates – if as a result of movement in the exchange rates it proved to be inadequate, that did not expose the agent to liability because it had done that which the section had imposed upon it; the liability to retain the equivalent of the assessed tax.  So again, in our submission, there is nothing in that case which really suggests that something imprecise is contemplated by the language “sufficient”.

Of course, there is this Court’s reasoning in Bluebottle to which we will take you where the same language is construed and is construed to mean the amount of the assessed tax, that is, construed in a way inconsistent with the submissions made by the Commissioner.

Your Honours, there are then three miscellaneous points that are put against us and I will deal with these briefly. It is said that the position of the agent under section 254 is likely to be – sorry, an agent in respect of its obligation under section 254 is likely to be in a better position to know more about the affairs of the principal than would the recipient of the money in section 255.

That is true in many respects.  Some agents will be better positioned to make reliable estimates of whether there is tax that is likely to become due, and so on, but others will not, and unless it can be said that all agents must be in a completely different position, then the fact that some are, and liquidators are in that position, that really is of no assistance, in our submission, in construing the operation of the section, as it does, applies to a wide range of agents.

The second thing it is said, in response to something we have said in our written submissions, is that we have said the section is no warrant for an agent retaining too much and that you can well imagine, as we would urge upon your Honours, the principal or the person who is meant to receive this money, complaining that the money which otherwise it is expecting, it has not received.

Our friends have said that the hypothetical agreed principal can give information to the agent.  If the agent has held back too much, then it is in the principal’s interests to reveal it so that the agent can adjust.  Well, again that is, I suppose, a practical consideration but there again, there is no subjective element in the operation of the section.  The section does not contemplate that an agent will respond, depending upon the agent’s assessment of the veracity of what it has been told by the principal.  It is an absolute obligation to hold this money, if it exists, and not one dependent upon the extent to which the agent is gullible and believes what is said by the principal or not gullible.

Then, finally, there is the proposition that somehow the – it is put in terms of the “outer limit” and if we can ask you to go to our learned friend’s reply submissions again at paragraph 14, it is said that the fact that the agent is not a stranger to the income, profit or gain not only reflects the likelihood they are better able to make predictions about the size of tax and so on but it also marks it is the “outer boundary” of the relevant liability.  That appears about halfway down the passage in paragraph 14.  That picks up something we will take you to in Bluebottle shortly but it is convenient to deal with it now because, in our submission, it is wrong.  The income, profit or gain does not set any boundary – the outer boundary at all except, I suppose, to the extent to which one could say the tax is seldom likely to be more than 100 per cent. 

In each of section 254 and 255, the subject matter of the retention obligation is expressed in the same words “tax which is or will become due”. The determination of the tax is by reference to different things. We accept that. In section 255 it is at large. It can be whatever activities of the principal may have given rise to that tax. In section 254 it is agency specific to the income, profit or gain. That is a difference but it does not alter the subject matter of the retention obligation. The outer limit of the retention obligation is the tax which is or will become due.

FRENCH CJ:   But it might be the money if the money is less than.

MR DOYLE:   True, that is true.  In a sense there are two sieves you have to get through.  You have to have the money and then it has to be do not pay more than the taxes which will become due, but the money might have nothing to do with the income, profits or gains.  As we have said, the income, profits or gains may never have – in terms of dollars, might never have come to the agent. 

Now, it is an integer which goes into the assessment of the taxable income at the end of a period which will influence the size of a tax, but it is difficult to give content to the submission that it somehow sets the outer bounds in any meaningful way, because what is out of bound is defined by the tax which is due. 

The final matter on this sort of practical difficulties that we would like to mention is something that we have said in our written submissions, and that is if, as it has emerged, what is being spoken of on the Commissioner’s construction is an obligation which arises on every dollar that is derived as income, profit or gain, it is right to say, on their construction, an agent will be constantly and continually having to calculate, based upon something, the contribution which that dollar may make to the taxable income at the end of the year to work out how much of that dollar has to be retained. 

That would be so even if the agent is otherwise complying with all of the reporting obligations imposed upon it by putting its BAS returns in, maintaining records and doing all the things that a taxpayer is answerable to do.  That would make it unworkable for somebody operating a shop to conduct business if they were doing so as agent for someone.  So those considerations really make the outcome urged against us ‑ ‑ ‑

FRENCH CJ:   The proposition is that as a practical matter, agents receiving money in a representative capacity – the agent takes a precautionary approach, and I suppose you could imagine an agent setting up some kind of tax reserve account, for example, in the same way as a person acting on their own behalf might set up a tax reserve account; practicing barrister.

MR DOYLE:   It is easier, in a sense, for us, so to speak, because the income is easy in a way ‑ ‑ ‑

FRENCH CJ:   There seems to be some mirth from the Bar table.

MR DOYLE:   I do not mean the payment of it, but the identification of the tax is easier.  But if in fact you are dealing with stock, how do you know, in a sense, when you have sold this particular item what the income profit or gain is?  But let us assume you can, and you have to take that profit and put 30 per cent of it away somewhere every time it happens.  That seems to be what is put against us, and that would be unworkable.  It would also contemplate an obligation which is wholly different from that which the taxpayer is subjected to, and whose position the agent is meant to be aligned with by subparagraph (a).

Your Honours, I was proposing to take you to some of the cases to which our friends took you.  Is this a convenient time, or shall I ‑ ‑ ‑

FRENCH CJ:   I think you can start, and we will rise at a quarter to.

MR DOYLE:   Thank you.  I have already mentioned Clyne; I will not take your Honours to it again.  Can we take you next to Commissioner of Taxation v Jones (1999) 86 FCR 282, really to ask your Honours to observe at page 284 section 82 of the Bankruptcy Act, which was what was there being considered.

What was there being considered was whether tax for a part of a year was a debt provable in bankruptcy, or was not a debt provable in bankruptcy as the case may be, and of course, in our submission, that can give you no assistance in understanding the operation of section 254(1)(d) where the word used is not “debt” at all but “tax which is or will become due”. One can find words in these cases which might out of context support the case advanced by the Commissioner, but the context here is one where the issue that we are now confronted with simply did not arise. The next case we would like to take you to is Webb v Syme.

FRENCH CJ:   Well, that might be a convenient moment perhaps.  The Court will adjourn until 2.15.

AT 12.41 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.14 PM:

FRENCH CJ:   Yes, Mr Doyle.

MR DOYLE:   Thank you, your Honours.  Your Honours, can we next take you to Webb v Syme (1910) CLR 482, to which our friends took you, to page 483, for your Honours to note at about point 9 on the page, the question that was involved in that case that whether income received by beneficiaries in the estate was to be treated as income from property or from personal exertion.

In the course of the discussion, there was some discussion of section 12 as it then was of the 1895 Act.  The first of them is in the reasons of the Chief Justice at page 490 at about point 6 of the page where he says:

Reliance was placed by Mr. Starke in his ingenious argument upon the provisions of sec. 12 of -

the relevant Act and can we ask your Honours to read that, although the part to which we draw your attention is a sentence commencing at the bottom of the page:

So far from these provisions showing –

across to the sixth line on the next page.

FRENCH CJ:   The proposition you ‑ ‑ ‑

MR DOYLE:   Ultimately, the proposition I wish to advance about these cases is that they tell you nothing about the operation relevantly of section 254 of the Act, but our friend has taken you to them. It is advanced in a case – in a section which speaks of a taxpayer being answerable for something which is the same as one we have here, it being clear, it said, that they point to:

the primary liability to income tax falls upon the beneficial –

that is the principal in the analogue in our case ‑

and that the liability of the trustee is only secondary, and contingent upon the beneficiary failing to pay the tax for which he is liable.

The extent to which one learns anything from this case, that is consistent with the construction for which we contend.  I should tell your Honours, as I have said a moment ago, we would urge that none of these cases, with the exception of Bluebottle, is sufficiently close to be informative at all but because they are relied upon against us, I wish to take you to them, if I may, but I will do so briefly.

The next is in the reasons of Justice Barton at page 497, almost halfway down the page where his Honour quotes section 12 and I think our learned friends took you to that.  But, again, his Honour says:

This in effect excludes any primary liability on the part of the trustee –

interpolate the agent, in our case ‑

but gives the Crown recourse to him in aid of the enforcement of the Act and for ensuring the payment which the beneficiary should make.

Again, entirely consistent with the construction we urge.  On the top of the next page his Honour, after referring to the personal liability obligation, says:

This provision is in aid . . . and imposes the personal liability, apparently, as a penalty for not keeping a –

fund, et cetera.  Again, consistent with what we urge.  Then, our learned friends took you to a passage in the middle of the page, commencing with “Reconciling the terms”.  Can we ask you to read what precedes it?  After a discussion of section 12, his Honour then commences to discuss section 15 which is a different section to the one with which we are concerned –

sec. 15(2) makes every trustee “chargeable” in respect of the income of which he is trustee “as if such income were the income of such . . . trustee,” that section must be read with and in the light of sec. 12, and cannot avail to convert into a primary liability a mere alternative recourse which sec. 12 proves to be reserved for exceptional cases.  Reconciling the terms of the two sections, we see that the word “chargeable” in this instance merely enables the Commissioner to resort to the trustee –

et cetera. The passage to which our friends took you in support of the proposition that it was to prevent any risk, et cetera, is a reference to the operation of section 12, and the “chargeable” reference in it rather than to the equivalent of section 254. Then, in the reasons of Justice O’Connor at page 507, the same points emerge. In the first full sentence, his Honour says:

But both sections make it plain that such persons –

the trustee –

are not under ordinary circumstances made liable to pay the tax; they are made answerable for its payment . . . It is only when, under the circumstances referred to in paragraph D –

the equivalent of our (d) –

they neglect those obligations that they become personally liable.

Then in the passage, again which our friends took you to, which follows, it is clear that his Honour is referring to the operation of section 15, not section 12.

Can we move from that case to the decision of Commissioner of Stamps (WA) v West Australian Trustee Executor & Agency Co (1925) 36 CLR 99. Now, as we apprehend it, this case was relied upon by the Commissioner for a proposition to this effect, that one can find in it some language to suggest that there can be a debt due by virtue of the obligations imposed by the generalised tax provisions of the Tax Act and that accordingly in section 254 the expression should be given some analogue construction.

There are a number of things to note about this case.  The first is that it was concerned with the expression “debt due” and in wholly different legislation to that with which your Honours are concerned.  If your Honours go to page 102, you will see at about point 2 of the page in the reasons of the Chief Justice he identifies the question as:

the meaning to be attributed to the phrase “debts due by the deceased” –

under a Western Australian provision.  Each of their Honours in that case – sorry, a number of their Honours in that case considered the expression “debts due” to be one worthy of a very wide import.  Firstly, that appears in the Chief Justice’s reasons at almost point 4 of page 102:

If it be conceded that the right of deduction –

et cetera, to about a little over halfway down the page, if we can ask you to read that, please.  Similarly, your Honours, at page 115, again about point 2 of the page in the reasons of Justice Higgins, in the fourth line his Honour says:

The word “debts” in sec. 88 does not necessarily mean obligations to pay such as would be classed as debts—present debts—for the old action of debt; the word must be given as wide a meaning in sec. 88 –

Similarly, Justice Starke at page 117 at about point 7 of the page:

The deduction of “debts due by the deceased” –

et cetera.  If we could trouble you to read the rest of that page and the first four lines on the next page please.  So the starting point for consideration of this case is that it is concerned with a different expression altogether than that with which your Honours are concerned.  The other features to note that in that case there were in fact assessments to tax, and that appears at page 99 of the report in the statement of the facts and there was no debate about the quantum of them.

Each of the assessments related to a year of income which was completed before the death of the testator, so that the kind of difficulties which confronts the Commissioner’s construction here of something occurring immediately on derivation did not arise at all in that case.  Moreover, the general tax obligation which was said to give rise to a debt due in that case is expressed by their Honours in terms of an obligation to pay tax on the taxable income, the net figure after the integers of the assessable income and the allowable deductions have been taken into account.  That, of course, is a fundamental difference, for the reasons we have already given you. 

Can we invite your Honours to go to the reasons of the Chief Justice at page 104, in the middle of the page, where his Honour puts the proposition:

In my opinion, the Income Tax Act imposed on every person who during the year . . . derived from sources in Australia income which was “taxable” according –

et cetera.  His Honour then goes on to explain the fact that it is a difficult calculation is not a reason for not saying it is a debt due.  What he is speaking about is the obligation to pay tax on that net figure of the taxable income.  Similarly, your Honours, in the reasons of Justice Higgins at page 114 at about point 8 of the page:

Under sec. 13 . . . the income tax “shall be levied and paid for each financial year upon the taxable income derived” –

and so on. Finally, in respect of this case, the remarks which insofar as they were observations about the operation of the 1915 Act were in respect of section 89, which is materially different, in a way that I will take you to in a moment, to section 254.

I have laboured that in a sense because this case is put against us for the proposition I advanced at the outset, that something can be said to be a tax due because it arises under the generalised tax obligations under the Act rather than upon an assessment.  That is only said in this case by reference to a different expression altogether, “a debt due”.  It is said by reference to circumstances where there was an assessment in respect of completed years.  It is said what the generalised obligation of the Tax Act is said to contemplate was an obligation to pay on the taxable income, which is different from what is said here, and in relation to a section which is different from the one that you have to construe.  We would urge that very little guidance is obtained by reference to what might have been said in that case.

Your Honours, the next case our friends took you to was Joshua Brothers v Federal Commissioner of Taxation (1923) 31 CLR 490. I was not proposing to take your Honours through this case because the proposition which was then being considered was whether sums in fact earned by a liquidator during the year of income were taxable at all, and for various reasons which are expressed in that case, the answer is no – yes, they are taxable, they are not exempt from the scope of the Act. There is nothing in the passages to which our friend took you nor, indeed, at all in that case, which bears at all upon the extent of the personal liability of an agent under the equivalent of section 254. If I take you again to those passages, it would be merely to make the submission that they do not bear upon the personal liability issue at all.

Which brings me then, your Honours, to this Court’s decision in Bluebottle UK Limited v Deputy Commissioner of Taxation, which your Honours have been taken to, (2007) 232 CLR 598. For our purposes, the relevant discussion concerned how one was to construe the retention obligation in section 255(1)(b) in the context of the operation of the payment obligation in section 255(1)(a). Paragraph 75 of this Court’s reasons, the differences between (a) and (b) were noted and in 76, which your Honours will have read, it was recognised that naturally the retention obligation may deal with the position when the time for payment had not arisen.

Now, we accept that the language is not identical between the two sections, section 255 and section 254 and in particular, the payment obligation is expressed in different forms in 254(1)(a) compared to 255(1)(a) but one should not overstate that because 254(1)(a) still speaks in terms of an obligation to pay the tax thereon and that is an obligation which can only arise after an assessment.

Then the core passages relevantly are in 78 and 79, to which our friends took you and I am sorry to say I would like to take you to them again. These things emerge, in our submission, from the discussion in those two paragraphs and that is despite section 255(1)(b) using the language “due” it was held that it must refer to an ascertained sum.

Now, our learned friends said in the course of their submissions that the reasoning employed by the court was that that was because of the payment obligation in (a) but that is not the way their Honours expressed it.  In paragraph 78, their Honours say:

When s 255(1)(b) refers to “the tax which is or will become due by the non‑resident” it must be read as referring to an ascertained sum. If the paragraph is not read in that way, the obligation to retain money which is imposed on the controller is an obligation of undefined content. It is undefined because all that may be retained –

and so on.  So, that the critical reasoning for reading what is identical language is because otherwise it is an obligation of undefined content.  Now, their Honours cure that lack of definition by saying it is to be constrained to the payment obligation.  We, in effect, adopt the same cure - the payment obligation as ascertained by an assessment.

The second thing that emerges from these two paragraphs is that in the discussion of what is meant by “sufficient”, it is a reference to the ascertained sum and only that amount.  As your Honours will see in paragraph 78:

it is that amount (and only that amount) which the controller is obliged to retain.

So that again, by reference to identical language, the Court in Bluebottle made it plain that “sufficient” was not intended a capture a range or an estimate or someone’s opinion about things but the ascertained amount which gave definition to the obligation.  Their Honours continue, as your Honours will have read, that prior to the assessment it is not possible to say that the tax will be due.

GORDON J:   For present purposes in the world of self‑assessment, what do you describe as the point of assessment?

MR DOYLE:   The period after which the return has been lodged which gives rise to a date for, in effect, the deemed assessment.

GORDON J:   Right, and in order to prepare and lodge your return, do you not have to undertake the very calculations about which you say are uncertain and you cannot do?

MR DOYLE:   That is so.  If you are able to ‑ ‑ ‑

GORDON J:   So does that not mean that in those circumstances you are left with the very process which you say creates difficulties?

MR DOYLE:   You have that difficulty come what may, but on the Commissioner’s – that is, if an agent does not have the information necessary, it may not be able to lodge a return that complies with the obligations of the Act and that may well expose it to a penalty.  But, your Honour, the trouble on the Commissioner’s construction arises at a much earlier time.  It arises at the moment of derivation.  The Commissioner ‑ ‑ ‑

GORDON J:   I am testing your proposition about the point of assessment because on the modern regime of self‑assessment, you will have already done the calculation.  You do not need the assessment for these purposes.

MR DOYLE:   Well, assuming the Commissioner accepts the self‑assessed figure.

GORDON J:   Subject to an audit or some other complaint about it, he would.

MR DOYLE:   But, your Honour, all we are now speaking about is the moment at which an assessment takes effect.  At the moment of assessment it is possible to say a sum is or will become due.

GORDON J:   But you accept ‑ ‑ ‑

MR DOYLE:   It may be – I am sorry, your Honour.

GORDON J:   But you accept that at that point you have already made your calculations?

MR DOYLE:   An agent, if he is well‑informed and able to make that calculation, will have done so.

GORDON J:   And will have lodged a return in accordance with that calculation.

MR DOYLE:   Assuming the agent is able to do that, that is true.  If the agent is not able to do it, there might be some other consequences but personal liability is not one of them, and can we say we understand the point your Honour is putting to us, but it is a slightly different – it is a completely different case from the one that is being put against us by the Commissioner which is not at the moment of lodging the return you should know the answer.

GORDON J:   No, I do not want you to misunderstand me, Mr Doyle.  I am not putting that to you at all.  I am putting a proposition to you which seeks to challenge your contention that you must have an assessment, i.e. a deemed assessment and a period expired before you are in a position to comply with the obligations in 254 and that does not seem to be practically right given the way the Act works.

MR DOYLE:   It may be that your Honour – and we are not at cross‑purposes.  The case being put against us is a different one but no – so I will move off that to answer your Honour’s question.  If an agent is able to comply with the obligation to put in a return and if by doing so is able to provide enough information to determine the amount of tax which is or will become due, then many of the practical difficulties to which I point fall away. 

But we are only talking about then the difference between the date of the deemed assessment and the – in terms of the operation of the section, our answer would be that perhaps at that point one could say you can introduce some certainty.  Absolute, complete certainty is afforded at the moment of the assessment, or the deemed assessment, and the section requires an ascertained sum which is the certainty afforded by the assessment, even if the sum is not payable.

The case which is put against us arises in a completely different circumstance, many, many months ahead of that event occurring because it is said it occurs at the moment you effect any sale or any income is received or any profit is received.  But the same question in respect of the same language is considered by this Court in identical language relevantly in Bluebottle and it was determined that to give certainty you could not say that the retention obligation arose simply because tax might become payable.  The language used is that you needed the assurance that tax will become payable.  If that reasoning transposes to the same language in 254, it is fatal to the case which is put by the Commissioner.

GORDON J:   So just so that I understand that, does that mean that the chapeaux to 254 and 255, despite their differences in language, are not distinguishable?

MR DOYLE:   Of course they are distinguishable but the chapeaux ‑ ‑ ‑

GORDON J:   Or substantively distinguishable in the sense that 255 is dealing with a controller who, to pick up your language and your argument, may very well not know what the position is and therefore, consistent with the argument which was accepted in Bluebottle, required certainty.  Here you have in 254 a very different integer or element where you have a liquidator or a trustee who is doing things and deriving income in their representative capacity.

MR DOYLE:   Yes. Your Honours, it is in fact not the chapeau which introduces this disparity. The chapeau in section 254 speaks of every agent being subject to what follows, and what follows then is the payment obligation in (a), that is, an obligation to be answerable as taxpayer to do various things and to pay the tax, an obligation to put in a return, and then a constraint, a personal liability imposed by (d). So the chapeau in fact merely captures the identity of the agency rather than a controller. When you go to 255, it is the same form in a sense. It has cast the net but it cast it against a controller.

GORDON J:   Well, it has one substantial difference and that is in 254 the obligation is imposed and answerable as a taxpayer, where it is not in 255, and not only just as taxpayer, but as taxpayer which carries with it the doing of all things as required to be done by virtue of the Act, again not found in relation to the controller.

MR DOYLE:   Of course they are different.  We accept they are different.  I suppose if they were not, we would not have this debate.  But we are now talking about the extent to which there is an obligation beyond to be answerable under subsection (1)(a) as taxpayer to retain money and to be personally liable if you do not.  It is the additional burden of what is provided for in (d) and (e) that is the subject matter of this case, as it was in Bluebottle, the additional burden provided by (b).  In what circumstances is the controller personally liable? 

Parliament has chosen to express that additional burden or that constraint upon the more general obligations in virtually identical language. Now, they operate in different circumstances. Did they not, we would not need both of them. But accepting that section 254(1)(a) makes the agent answerable as taxpayer does not answer the question what is the extent of the retention obligation which is provided for in (d)?

It is the retention obligation with which we are concerned.  We have said this in our written submission, that each of the sections operate in different environments and it is right to say that an agent may well be better informed than a controller in terms of the affairs of the principal.  In many respects they might overlap.  But what is not right to say is that an agent would always know – and I have given your Honours some examples of that – and the fact that the controller would not always know is the very thing to which this Courts refers in Bluebottle by saying it cannot invariably be said that the controller would know. 

So to introduce the certainty which otherwise exposes a controller or the agent to a personal liability – not concerned with the payment obligation, but the personal liability, you need to impose it in certain terms, that is, in defined and certain terms.  The language which Parliament has employed to describe that imposition is, for all material purposes, identical.

Turning, if we may, back to the reasoning in Bluebottle, can we ask your Honours to go to paragraphs 80 and 81 where, in relation to what I at the outset of our submissions described as the key language used in our subsection 1(b), their Honours said there, that in (b), 255(1)(b):

The phrase “tax which . . . will become due” is to be understood as referring to tax which, although assessed, is not yet due for payment.

So, in the composite expression “tax due” or “will become due”, this is a case considering precisely that expression and has said that the expression “will become due” is not to be understood in the form the Commissioner says, that is, will become owing, but is to be understood as meaning will become due, as assessed, but not yet payable.  Again, we make the submission that the identical words appear in 254(1)(d) and ought be given the same construction.

KEANE J:   Is not the way in which the Court reasons in paragraph 81 to say the word “due” can mean owing?  Whether it means owing or due and payable depends on context and it is the collocation in 255 that answers that question.

MR DOYLE:   Yes, and it is 255(1)(b) which contains the collocation of “due” or “will become due”.

KEANE J:   Which is not in 82, the point made about the intersection:

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. . . and the amount that must be retained . . . Once this intersection between the operation of para (a) and para (b) of s 255(1) is identified, many of the issues . . . fall away.

Is not the point that paragraph (a) which deals with the payment obligation, expressed in terms of a tax liability which must be the subject of assessment because it is tax payable?

MR DOYLE:   Yes.

KEANE J:   So what you have got is the context in which 255(1)(b) operates is one in which you know from paragraph (a) that the amount to be retained is the amount that is payable, and that is an amount made payable under an assessment.

MR DOYLE:   The way your Honour has put the question answers it against me; that is, if you start by saying that section 255(1)(b) defines the retention obligation as being only consequent upon an assessment, then they are the same.

KEANE J:   Sorry, I was really asking the question on the basis that – I was putting to you that that is the process that seemed to be the one pursued by the court in paragraph 82.

MR DOYLE:   We would submit no.  Can I go back and take your Honours through some of those steps?  What is the key expression referred to by their Honours is the expression “to pay tax which is or will become due”, and they have determined that to provide definition to that requires that it be a certain ascertained sum, which means the expression “due” means under an assessment, even if not yet payable, so it will become payable in the future.  That produces the intersection with (a), because the sum which you have to pay is the sum which the taxpayer had to pay.

Now, that – I am sorry, I will come back to say something about the collocation in subsection (b) in a moment – that is no different, in our submission, to the construction of 254(1) because the obligation in 254(1)(a) is for the payment of the tax thereon.  That is, the payment obligation does not elevate the obligation of the agent to pay tax beyond that which the taxpayer has to pay; it would pay the same that the taxpayer would have to pay, and to pay it, payment of the tax, which presupposes its assessment and probably that it is due for payment.

Now, on our construction of (d), there is coincidence.  The obligation to retain is to retain that sum, the sum which pursuant to an assessment has become payable, or will become payable.  There is that same intersection, if you like, between the two.  The intersection seems to be a product of the reasoning rather than the objective, but if it is the objective, you achieve the same, in our submission, by the construction for which we contend.

In 255(1)(a), the language spoken of in the payment obligation was “tax due and payable”, and one would have thought, then, when 255(1)(b) refers to “tax due”, something different was meant, and their Honours go to explain why it cannot mean that.  It must mean what I have taken your Honours to, to have it mean an ascertained sum, and the prospective element is concerned with the date for payment, so it means, as we urge it means, “owing and payable” or “owing to become payable”.  That is what their Honours have concluded.

The expression of the collocation is an expression of the collocation found in 255(1)(b) – that is, what their Honours are referring to is the collocation of the word “due”, “is due” or “will become due”.  Those expressions are collocated in (b), and the identical collocation appears in our (d).  So your Honour is right, what that said is one has to – the word “due” can mean other things in different contexts and, indeed, in 255 there is an indication that it perhaps did mean that, but their Honours reject that for the reasons I have given you, and then conclude in the passage ‑ the key description of the obligation in 255(1)(b) where the word “due” is collocated with “is or will become due” is taken to mean that for which we contend.

That is the reference, and as a consequence of that reasoning the need to introduce certainty into the obligation, the requirement for giving content to the expression “due or will become due” in the way I have described, that you end up with a retention obligation which intersects with the payment obligation. We say the same, that the retention obligation for which personal liability is imposed upon the agent is the same as the obligation to pay the tax under (a) and as compared with section 255, it is identical. The retention obligation under (b) is to pay the tax which is imposed by (a).

FRENCH CJ:   It may be that this is applicable to both, but there is a curious contingency, is there not, attaching to the construction you advance of 254(1)(d) that the retention obligation depends upon the accident of how much money you have got and assessment issues?

MR DOYLE:   It is the same.

FRENCH CJ:   It is an accident of time within a period.

MR DOYLE:   No, I am sorry if I have misunderstood your Honour’s question, but if there is an assessment issued for a million dollars and the agent has nothing, but later gets that money or gets some part of it – it does not matter – the retention obligation attaches.  Now, that is the same mechanism ‑ ‑ ‑

FRENCH CJ:   But the agent might have had it earlier before an assessment, during the relevant accounting period, for example, and distributed it or returned it.

MR DOYLE:   On the construction for which we contend, if there had not been an assessment, the retention obligation would not arise.

FRENCH CJ:   That is right.

GORDON J:   So, in other words, in a liquidation you could in this case – take the facts of this case – you could get in the sale proceeds from the property and distribute it to the beneficiaries and under no obligation to do anything, notwithstanding at the end of the year the liquidator has to fill out a return, complete it and lodge it.

MR DOYLE:   Under section 254, that is so. Now, whether ‑ ‑ ‑

GORDON J:   A very odd result, Mr Doyle.

MR DOYLE:   Well, no, the liquidator has to pay all sorts of creditors and has obligations under the Corporations Act to pay all sorts of creditors and performs those.  The odd result which would occur here is if somehow or other by this means the Tax Commissioner gets a bite early really.

GORDON J:   He does not under 556, because under 556(1)(a) and (dd) there has got to be expenses paid for realisation or otherwise expenses under (dd) before you even get to deferred expenses.

MR DOYLE:   But, your Honour, the question that your Honour is putting to me is not whether the Commissioner gets paid, but whether the Commissioner gets paid more, because if the Commissioner is a creditor, they will get paid – if there is enough money they get paid; if there is not enough money – this is a debate yet to be had about the operation of the Corporations Act.  But like any other creditor, the Commissioner will stand in the queue.  It may be the Corporations Act puts them ahead of the queue.

GORDON J:   I think you need to distinguish between pre‑liquidation expenses and post‑liquidation expenses.  We are dealing with post‑liquidation expenses here, not pre‑liquidation.

MR DOYLE:   Where the Commissioner stands in the ‑ ‑ ‑

GORDON J:   Which is under 556.

MR DOYLE:   Where the Commissioner has an entitlement under the Corporations Act, that exists, such as it may be, and one of the things that, depending on the outcome of this case, may need to be determined is where the Commissioner does stand in that scheme of things.  But what we are really concerned with is whether he gets to stand earlier, so to speak, in the queue.

FRENCH CJ:   The question I was putting to you was really in the larger context of agents and trustees and out of the complications of the Corporations Act on one construction there is a kind of continuing obligation throughout, say, the relevant accounting period.  On another construction there is suddenly a spike, if you like, an obligation appears dependent upon the timing of the issue of the assessment.

MR DOYLE:   Yes.  The obligation to retain and the personal liability which is attached to it, that is so.

GORDON J:   Just so I am clear, on your construction, I could as an agent calculate my amount that I am to pay under my return, lodge it and I have got no obligation to retain until I have the period of the deemed assessment expire.

MR DOYLE:   Yes, your Honour. I suppose I would put it differently. You are free to do what the law allows you to do until the personal liability imposed by section 254(1)(d) is enlivened, and on our construction it is enlivened upon an assessment. So at that point only can it be said there is tax which is or will become due, and that is the same level of protection afforded by the operation of section 255. Your Honours, I was going to take you further in Bluebottle to what I described as the three radical ‑ ‑ ‑

FRENCH CJ:   I am sorry, just to come back a moment, would you say that the problem that I have identified – or you may not agree it is a problem – arising with your construction is also good for the 255 construction adopted in Bluebottle?

MR DOYLE:   It arises in different circumstances, but 255 ‑ ‑ ‑

FRENCH CJ:   Yes, but a continuing versus a spiking obligation.

MR DOYLE:   Well, in 255 it is clear it spikes – it is created at the moment of the delivery of the notice.

FRENCH CJ:   Yes.

KEANE J:   And that is because the controllers had nothing to do with the income of the non‑resident taxpayer.  It postulates no involvement with it at all and the controller comes in only because the controller is given a requirement in the context that there is also an assessment.

MR DOYLE:   Yes, your Honour is putting to me the way in which this Court construed the words which give rise to that assessment, that obligation.

KEANE J:   Yes, and the reason it is of concern is that at paragraph 84 in Bluebottle where their Honours refer to section 52(e) of the 1915 Act, and the obvious similarities are noted, it is then said:

the context in which s 52(e) appeared is radically different from that provided by s 255 –

Now, to say that it is “radically different” would suggest that it produces a different outcome, otherwise they would have said it is not very different at all.

MR DOYLE:   Well, your Honour ‑ ‑ ‑

GORDON J:   I understood when I put that to you you said that although the language is different the result is the same.  In other words, you challenged paragraph 84 of Bluebottle.

MR DOYLE:   I am going to take you to the three radical differences in a way which I sense will not satisfy your Honours that in fact some of these differences are not significant, but it is to be borne in mind that what their Honours are talking about is section 52(e) of the 1915 Act which is not the same as section 254 of the current Act, or indeed 255 of the current Act.

They identify in a case where it is said that historical context somehow informs the proper operation of section 255. Their Honours considered the historical development of what is now 254 as being different. Ultimately, their Honours say, that historical context really is of little value and I will obviously urge that upon you.

But the three things that are referred to is obviously the first, that the agent is answerable as taxpayer and without repeating it, I recognise that as being a difference but it is one which, in our submission, supports our construction. Our construction is to the effect that the position of the taxpayer and the agent are relevantly assimilated, that is, under the payment obligation under (a) is to do something and be answerable as taxpayer for the payment of the tax and tax is paid post assessment on the net taxable income, differently expressed, significantly differently expressed from section 255 but nonetheless the construction for which we contend shows that it produces the same effect in terms of the payment obligation.

GORDON J:   Well, another way of looking at it, Mr Doyle, is to say that as a taxpayer I am obliged to put aside from time to time sufficient of the income or profits or gains I receive in order to ensure that at the end of the year, when I actually self‑assess, I have sufficient to pay my tax, just as I think the Chief Justice put to you, a barrister does or anyone else does.

MR DOYLE:   Yes, and such language would be plainer against the case which I contend, but that is not the language which is used.  The language which is used does two things relevantly.  It makes the agent answerable as taxpayer and, when we looked at what was said in Webb v Syme, to which I took you, that was said not to impose a primary liability.  In fact, it said it makes it clear it is not a primary liability.  We obviously adopt that because ultimately what this Act makes plain is that personal liability of the agent, which is coincident with the retention obligation, is expressed in a different way.  It is not expressed to retain money to meet your liability to pay the tax thereon from time to time.  It is expressed in a different form in subsections (d) and (e) to which I have taken you.

The second difference which is pointed to in this case is that the authority is given, the requirement is given with respect to tax due in respect of the income.  Now, I have addressed your Honours about that already.  It is a difference but it is a difference which again we would submit is supportive of our construction because it can only be said of something that tax is payable in respect of where that something is an integer in the calculation of tax, after the income year, when you have taken into account the allowable deductions and all other assessable income, to identify the tax that is or will become payable.

The third difference which is pointed to is the reference to the agent’s personal liability depending upon his paying money away, after the Commissioner had required him to make a return or while the tax remained unpaid. Now, that highlights that what their Honours were there talking about is an importantly and differently expressed provision, which I will take you to shortly. Section 52 of the Act had a provision to that effect which is sustained in section 89 which followed but removed when it came to section 254, as we will see in a moment.

GAGELER J:   What part do those radical differences play in the reasoning in Bluebottle?

MR DOYLE:   None, in the end.  What was being considered – sorry, your Honours, if you go to paragraph XCI, having traversed the historical context and bear in mind the context being spoken of was the development of 255, their Honours were not directing their attention to the development of 254.  But in the end it is said that they provided only limited assistance in the resolution of this question.  I will take you to the historical provisions in a moment and they really give you no guidance at all, in our submission.

Recognising those different words in the articulation of the payment obligation and recognising the different entities upon whom those obligations – or to whom they extend – a controller on the one hand, a trustee or agent on the other – when it comes to the key retention obligation Parliament has chosen to use virtually identical language to describe the obligation to retain from time to time sufficient – out of some of the money – to pay tax which is or will become due and you are being invited to conclude that those words have what is a fundamentally different construction, that is, Parliament intended by using the same words to produce fundamentally different outcomes in terms of the personal liability of the agent or controller.  Obviously, we would submit that ought not to be done.

May I deal here, very briefly, with the historical provisions to which our friend took you?  If your Honours can take up that bundle at the points provided to you?  If your Honours would go first to page 4 – this is the 1895 Act and this is the provision which was considered in Webb v Syme.  Our friends have already pointed out to you some differences between this provision and the current provision but you will note in respect of – sorry page 7 of the bundle in section 12(1)(c) – it is expressed as being:

sufficient to pay the tax for the current year –

a form of words which was lost from the current provision and, in (d), the form of the personal liability is fundamentally differently expressed. If your Honours then turn to page 17 – this is section 52 of the 1915 Act which was that considered by the Court in the historical discussion in Bluebottle.

If you go to (f) – I am sorry, I should stop at (e) – our learned friends invited your Honours to conclude that in (e), the departure from the words that had been in the preceding provision, section 12, was to use less words to achieve the same result – or more, that is right.  It is different words, but whether it is designed to achieve the same result there is nothing that appears in any relevant extrinsic material which casts any helpful light on that.

Then if you look at (f), which is one of the provisions which has disappeared – it is the provision which has disappeared from any analogue in section 254 – it seems to contemplate that the obligation arises at an earlier time and, in any event, it is sufficient to say that it is fundamentally different from section 254.

If your Honours then turn to page 28 at section 89, which is broadly the same as section 52, you will see it has the (f) on page 29, which has gone from the present section. We would urge that you really cannot draw any assistance at all by looking at what are materially different expressions of obligations in earlier provisions to inform anything about the current operation of section 254, save that it is intended to be different. Why else change those key words which affect the personal liability?

Your Honours, there are only two other things that we wish to mention. One is that the Commissioner has put in their written submissions that the construction for which we contend exposes the agent to vulnerability in some way, vulnerability at the complaint of the principal. That vulnerability does not exist, because section 254(1)(d) and (e) each define the extent of the personal liability, and they do so by reference to, if we are right, the sum which is certain defined by the assessment.

Indeed, we would urge that it is the Commissioner’s construction which exposes an agent to vulnerability of complaint because the Commissioner calls for a retention obligation and an indemnity in respect of

a retention obligation where the amount is uncertain, where it may turn upon the level of predictability of conduct, the veracity or the extent to which the agent relies upon the veracity of the principal or a raft of other things, and that seems calculated to create conflict and vulnerability where, on our construction, that does not exist.

The second and last thing we wish to say is that our learned friends – and I have touched on this already – really said that our construction robs the section of utility, or at least diminishes the protection of the revenue; I will put it neutrally. It is right to say that the Commissioner’s construction would give the revenue greater protection, but the level of protection which is being afforded materially is the same under sections 255 and 254.

One cannot conclude that it is irrational for Parliament to choose to say the revenue will be given protection to secure sums after an assessment has been issued. In a sense, our submission is of course, the Commissioner might want it to create a greater protection, but it has not, in our submission, and there is nothing irrational in the course which has been adopted, being as it is, the same extent of protection afforded under section 255.

It strikes an appropriate balance, in our submission, between a personal obligation which arises or springs from this retention obligation and the raft of uncertainties and so on to which we pointed on the approach adopted by the Commissioner.  As well as we have said at the outset, it is wrong to say that the construction for which we contend operates only for 21 days in the way that I have described, it can operate until the tax is paid.  May it please the Court, those are our submissions.

FRENCH CJ:   Thank you, Mr Doyle.  Yes, Mr Solicitor.

MR GLEESON:   Your Honours, in reply what you have essentially heard is this. There are radical differences between sections 254 and 255 but they produce no relevant difference in effect in one of the most critical parts of the section, namely the scope of the retention obligation. You have heard that the cases we have taken you to are of no guidance and you have heard the historical development is of no guidance because it is differently expressed. In the end, what you have heard is that because some words appear the same, even though in a different context, you give them the same flow‑over effect. We would ask you to reject that broad approach.

Can I just come to the logic of the competing positions and the purpose they achieve?  Your Honour Justice Kiefel asked a question of my learned friend as to what the trustee or agent is meant to do in advance of assessment.  As I understand the respondent’s position, in the first accounting year, if the agent or trustee derives income in the representative capacity, the agent or trustee is perfectly free to pay every dollar of it away, and indeed, if there is a demand from the principal the beneficiary would ordinarily do so. 

Then, assuming a return is required in the ordinary course, that will come in the second year in respect to the first year, a return will be lodged, it will declare the income and all other information needed to calculate the taxable income and then there will be an assessment.  There will be no fund there to meet that tax.

So the income which has been derived in the representative capacity has gone. What that means on the respondent’s position is that at best section 254 operates as a partial contingent catch‑up mechanism so in year two, if some income is derived – provided the assessment has occurred for year one you may then use year two’s income against year one’s assessment. If there is a year two, if there is enough income and, of course, it goes on and on.

There may never be a year two as in the case of a, perhaps, liquidator where it comes to an end in one year.  If there is a year two, there may or may not be enough there.  When you get to the final year, you have run out.  Your Honour the Chief Justice was referring to the difference between the continuing view and the spike view.

Another way of looking at the spike is there may or may not ever be a spike but if there is you use the spike to pay yesterday’s debt.  So, in crude language, on this theory, if you get some money today, you might use it to pay yesterday’s debt.  But what you can never do is use today’s money to pay today’s debt. 

Now, on our contention, 255 is designed to do something different and I know my friend dismisses Webb v Syme and says just ignore that.  But, really, Webb v Syme makes the purpose perfectly clear.  As that income is received in year one, it is to be there to pay the tax.  The difference between 254 and 255 is if you choose to take on the responsibilities of the trustee or agent you are responsible for the tax affairs of the beneficiary or principal whereas, if you are merely the controller under 255, you do not have that responsibility and so there is a different result.

Can I take that one step further?  There could be cases where a person is caught by both 254 and 255.  You take on the responsibility of receiving money for a non‑resident but you are also a trustee or agent for that non‑resident.  In that situation the additional obligations of 254 will cut in.

KIEFEL J:   If one of the substantial premises for your construction is the particular position in which the agent or trustee stands with respect to the taxpayer’s information in 254, is it possible that as a matter of construction there is an intermediate position, namely, that the obligation for retention arises on the making of the return?

MR GLEESON:   Well, it is a possible position.  We would argue against that, your Honour, on the ground that ‑ ‑ ‑

KIEFEL J:   But it would largely overcome the point to which Mr Doyle referred, which is the problem of personal liability arising.

MR GLEESON:   Well, I want to come to that.  That is not the problem.  The problem he adverts to is not a problem but, to be clear, our position would be that if – I can understand the attraction of that sequential view:  derivation, then return, then assessment.

KIEFEL J:   Well, I asked about it before ‑ ‑ ‑

MR GLEESON:   Yes.

KIEFEL J:   ‑ ‑ ‑ because it may be that assessment obviously works in 255 more clearly, but return might be more ‑ ‑ ‑

MR GLEESON:   What it does ‑ ‑ ‑

KIEFEL J:   ‑ ‑ ‑ the point of return.

MR GLEESON:   Yes, what it does is leave the big gaping hole, because during the year I am the trustee or agent, I derive the income, I receive a demand to pay away, I have no authority or requirement to withstand that demand, so I pay away, I then put my return in, in the ordinary course after the end of the financial year; too late, money gone, so it does not solve the large problem.  But taking up your Honour’s question, and these ‑ ‑ ‑

KIEFEL J:   But that is ‑ I mean, it is not to overlook that there is a specific obligation under (1)(b).  I think the question has been raised earlier, I think by the Chief Justice, about what the sanction ‑ ‑ ‑

MR GLEESON:   Yes.

KIEFEL J:   ‑ ‑ ‑ for a non‑return is, but it is a clear obligation which has to be read in light of the other obligations.

MR GLEESON:   And it is an important obligation because it makes more specific answerability and says, if you take on the role of trustee or agent, you are bound to make the return and, therefore, to make all inquiries and keep all records so that you can make a proper return.  The answer to your Honour’s question is the sanctions are, firstly, under section 163A of the 1936 Act, if you do not make a return on time but, more importantly, under the Taxation Administration Act, sections 8J and 8K, if you do not make an accurate return, as it were.  It is that latter one that really matters.

So, if I take on the job of the trustee or agent, as the year is going on, I know that I will have to make that return, ordinarily after the year ends, but I could be subject under ‑ we gave the reference to section 168 of the 1936 Act.  Another provision is section 162, which allows the Commissioner to call for further returns at any time during the year.  So, to meet my obligation under (b), it is my job to keep the information and, indeed, obtain the information from the principal or the beneficiary so I can make a faithful return.  So, could I then come to this question of impracticality and how it actually would work under paragraphs (d) and (e), bearing in mind the return.

As we would contend, the first step is to reject Mr Doyle’s argument that you necessarily are doing accounts every day of the year.  Subsection (d) cuts in at the point where you contemplate paying away money.  If you do not pay away any money to the beneficiary prior to assessment, then you are not in trouble under (d) or (e).  So (d) cuts in if you are contemplating paying away money, and at that point in time, as between, let us say, the agent and the principal, what the agent will do is (a) rely upon all information the agent already has, plus (b) ask the principal for any other relevant information to determine sufficiency.

To take a simple example, your Honour the Chief Justice asked is the amount of money in your hands the absolute outer boundary, and it is.  If you have got $100 in your hand, that is the absolute outer boundary.  The next question will be how much income has been derived through my representative capacity, and I am deemed to know that amount – and certainly to find it out, and that is not too hard – so assume $50 income has been derived.  The next step down will be to say – and this is in the face that a principal asking me “hand over $50” – the next step down will be to say, do I have any information which would lead me one way or the other to hold back part or all of the $50.  The first step down might be were any relevant costs incurred in deriving that IPG.  Now, if I do not know of any costs and if the principal does not tell me of any costs, then there will be no basis for me to do other than say $50 is the amount I should be dealing with.  The only other step I need to know is the marginal tax rate ‑ ‑ ‑

FRENCH CJ:   You also need to know income derived by the principal by virtue of the agency, do you not?

MR GLEESON:   By virtue of the agency and again –

FRENCH CJ:   Which may not have come directly through you.

MR GLEESON:   Which may not have directly come through you and, again – and taking up your Honour’s question – you would say to the principal, can you give me any information on that topic?  But, if they cannot, to take up your Honour’s question, that might be a reason to say the hundred dollars need to be maintained because I have no reason other than to act on a conservative basis.

So, these are dealings which will occur as between the agent and principal and on the basis of those the agent will determine what is the sufficient amount and will determine what to hold back and that will only occur at those points in the year at which there is a demand to release money from the fund.  By that means, the fund derived during the year and received during the year is available to pay that year’s tax. 

With the personal liability under (e), your Honour Justice Kiefel asked a question about the “should”.  In effect, what is in the “should”?  Is that an objective calculation or is it, perhaps, a normative or subjective assessment of reasonableness.  We would believe it is probably more the former in this sense – that the personal liability, by definition, will only come home at a point when the tax on the IPG has been assessed and due.  So, it will come in at the end of a period after there is an assessment. 

At that point in time, one will be able to work out what is the tax in respect to the IPG – one will have a figure – and what one will do is compare it to the amount which is in the hands of the trustee or which the trustee paid away during the year.  So, in a simple example, if at the end of the year the tax on the IPG is $250 and if during the year the trustee had $250 in his or her hands but chose to pay away $50 and keep $200, the result would be the trustee would be personally liable for $50 and then what the trustee would have to do is look to the beneficiary for recoupment under, for instance, section 258 which allows a statutory recoupment.  So, what that example would show is – and to this extent we probably agree with Mr Doyle, there is an ‑ ‑ ‑

KIEFEL J:   Are you agreeing that (d) and (e) are talking about the same amount?

MR GLEESON:   Yes, and ‑ ‑ ‑

KIEFEL J:   So you are talking about an assessment, the only difference between you is whether or not you can distribute before then.

MR GLEESON:   Yes.  So in terms of your personal liability the assessment will give you a figure for which you will then compare what came into your hands and what you kept and what you paid away, but where the difference will be is under (d), that you are required to keep that money on pain of doing this whereas on Mr Doyle’s view you happily pay it all away and then the only work that (e) will do is, as I say, in the catch‑up world where it will be money that comes in after assessment in year two which might then be available for year one’s tax.  That, we submit, does not give effect to the purposes of the provision.

FRENCH CJ:   Coming back to – you mentioned before of overlap, if a 255 person is also a trustee or agent for the purposes of 254, albeit that the principal is a non‑resident, is 254 the governing provision?

MR GLEESON:   Yes, and, to take up Justice Keane’s question, if you take on the extra responsibilities of a 254 person, you are deemed to familiarise yourself with the taxation affairs and, therefore, obligations cut in earlier.

FRENCH CJ:   A fairly large subset of the people having the control or disposal of money belonging to others would probably fit within the notion of a trustee or an agent, would it not?

MR GLEESON:   But it has to be the trustee or agent deriving the income in the representative capacity.

FRENCH CJ:   Yes, all right.

MR GLEESON:   In many cases – so, it will not cover the bank account example, but a simple trustee relationship of a capital sum of money placed in the hands of a trustee would be unlikely to trigger 254, save when you get to the income on it.  But if it is in your hands and you are deriving the income, then in respect of the income, 254 will say, put money aside.

GORDON J:   You accept in relation to (d) the obligation to retain is in relation to the tax in respect of the income, profit or gains referred to in (a); i.e. that you have derived in a personal capacity, and not more broadly.

MR GLEESON:   Yes, and not more broadly and that may be less than the larger figure.  That is the critical part of (d), which is different to its parallel in 255, and the respondent really does not grapple with that difference.  Your Honours, on the submission that the legislative history is not only not interesting, but irrelevant, it was said there are differences.  You did not hear that go to the next step, that at some point there was a decision to narrow the protection given by this very important provision.  We would submit there was no such change. 

We have given your Honours one piece of extrinsic material which is from the Taxation Laws of Australia:  1936-43 which, in its form, set out section 89 of the 1922 Act, and then what is misleadingly called 255 but in fact became 254 – so, that is the key provision.  The point of this comparison is that when you look at the footnotes, the drafter was saying, to the extent I am making changes, these are the only changes I am making. 

The critical one is footnote (b), which explains that the limitation on the personal liability was to the amounts which he should have retained out of the money which came to him in his representative capacity.  On one reading under section 89 of the earlier provision, the personal liability was, in a sense, unlimited once you paid away money which you should not have paid away. 

So, what that change did was to make the link between the retention and the personal liability much more explicit, confined, and targeted, producing the result then that it is that which you should keep under (d) that leads to your personal liability under (b).  Unless your Honours have questions, that is what I wish to put in reply.

FRENCH CJ:   Thank you, Mr Solicitor.  The Court will reserve its decision.  The Court adjourns until 10.15 tomorrow morning.

AT 3.25 PM THE MATTER WAS CONCLUDED