Federal Commissioner of Taxation v Dalco

The Federal Commissioner of Taxation appealed to the High Court of Australia against a decision of the Full Federal Court concerning the assessment of income tax against Dalco (Australia) Pty Ltd. The dispute centred on whether the Commissioner had erred in adopting a particular basis for assessing Dalco's taxable income, and consequently, whether the assessment was excessive.

The High Court was required to determine two primary legal issues. Firstly, whether the taxpayer bore the onus of proving that the tax assessed by the Commissioner exceeded its actual tax liability, even if the Commissioner had made an error in the basis of assessment. Secondly, the Court considered the implications of an error by the Commissioner in adopting a particular basis of assessment under the *Income Tax Assessment Act 1936* (Cth) for the validity and enforceability of the assessment.

The Court held that the taxpayer bears the onus of proving that an assessment is excessive under section 190(b) of the *Income Tax Assessment Act 1936*. This onus is not discharged merely by demonstrating an error in the Commissioner's method of assessment; the taxpayer must also establish the correct amount of tax that should have been assessed. The Court affirmed that while section 166 empowers the Commissioner to make an assessment, and section 177(1) presumes its correctness, section 190(b) places the burden on the taxpayer to prove excessiveness. The Court noted that section 167(b) allows the Commissioner to make an assessment on a basis other than that provided by the Act if the taxpayer has failed to supply the required information, but this does not relieve the taxpayer of the onus of proving excessiveness on appeal.

The High Court allowed the Commissioner's appeal, setting aside the order of the Full Federal Court and remitting the matter to the Federal Court for further hearing.