Stuart, Edward Geoffrey v Commissioner of Taxation of the Commonwealth of Australia
[1996] FCA 810
•13 SEPTEMBER 1996
CATCHWORDS
INCOME TAX - assessment - whether "Nil Tax Advice" a notice of assessment - "taxation objection" - "appealable objection decision" - provisional tax.
Income Tax Assessment Act 1936 Part IV; ss 161, 166, 170, 174, 175A, 204, 207, 221YA, 221YB, 221YDA, 221YC; sub-ss 6(1), 221YA(2), 221YB(1), 221YD(1)
Taxation Administration Act 1953 Division 3 and 5 of Part IVC; ss 14ZL, 14ZQ, 14ZU, 14ZY, 14ZZ, 14ZZK, 14ZZN, 14ZZO; sub-s 14ZY(2); para 14ZZ(a)(ii)
Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243
Deputy Commissioner of Taxation v Sheehan (1986) ATC 4718
Webb v Deputy Federal Commissioner of Taxation (No. 2) (1993) 47 FCR 394
EDWARD GEOFFREY STUART v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
WAG30 OF 1966
NORTHROP, LEE, FINN JJ
PERTH
13 SEPTEMBER 1996
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION ) NO. WAG30 OF 1996
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
B E T W E E N: EDWARD GEOFFREY STUART
Appellant
and
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
MINUTE OF ORDER
THE COURT: NORTHROP, LEE, FINN JJ
DATE OF ORDER: 13 SEPTEMBER 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
The appeal be dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION No. WAG 30 of 1996
ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE
B E T W E E N :
EDWARD GEOFFREY STUART Appellant
and
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
COURT: NORTHROP, LEE and FINN JJ
PLACE: PERTH
DATE: 13 SEPTEMBER 1996
REASONS FOR JUDGMENT
Northrop J
On 8 February 1996, Edward Geoffrey Stuart, as applicant, filed an application under paragraph 14ZZ(a)(ii) of the Taxation Administration Act 1953 ("the Administration Act"). The application stated that the applicant "appeals to the Court against the appealable objections decision" described as follows:-
"Objection decision appealed against:-
As advised to the applicant by letter dated 8th December 1995 and received by him or [sic] about 15th December 1995:-
That the nil tax advices issued 13th September 1995 to the applicant, in respect of the years ended 30th June, 1989, 1990, 1991, 1992, 1993 and 1994 are not notices of assessment and that the applicant has no right of objection in respect of them.
That the "other amounts payable" appearing in the said nil tax advices would not form part of the assessment of the applicant for the years in question.
That no decision would be made by the Australian Tax Office in respect of the applicant's notices of objection dated 10th November 1995, despite the applicant's request that the respondent make a decision in respect of the said objection, as set out in the applicant's letter dated 6th December 1995."
By motion, notice of which was dated 16 February 1996, the Commissioner of Taxation of the Commonwealth of Australia ("the Commissioner"), as respondent, sought an order that the application be dismissed on a number of grounds, the essence of which was that the decision sought to be appealed was not an objection decision under the Administration Act. On 15 March 1996 the Court allowed the motion and ordered that the application be dismissed. Mr Stuart has appealed from that order.
Before turning to the facts of this appeal, it is helpful to refer to the statutory provisions conferring jurisdiction on the Court to hear and determine objection appeals relevant for the purposes of this appeal.
Part IV of the Income Tax Assessment Act 1936 ("the Assessment Act"), is headed "Returns and Assessments". Section 161 requires every person, as required by the Commissioner, to furnish a return of income in conformity with the Assessment Act.
Normally this is to be done with respect to each year ending 30 June. Under section 166, from the returns, as well as from other information in his possession, the Commissioner must "make an assessment of the amount of the taxable income" of the taxpayer, "and of the tax payable thereon". Under section 174, after an assessment is made, the Commissioner must give notice in writing to the person liable to pay tax under the assessment. Section 175A is set out in full :-
"175A A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953."
Before turning to the relevant provisions of the Administration Act, it should be noted that in the Assessment Act, by sub-section 6(1), unless the contrary intention appears, and there is none here, "assessment" means, for relevant purposes, :-
"(a) the ascertainment of:
(i) the amount of taxable income; or
(ii) .......
and of the tax payable on that taxable income ...."
The same meaning must be given to that word where relevantly it appears in the Administration Act.
The manner of making objections is contained in Division 3 of Part IVC of the Administration Act.
That Division is headed "Taxation objections". In Part IVC, by section 14ZQ, the phrase "appealable objection decision" means an objection decision other than certain specified objections none of which is relevant for present purposes and the phrase "objection decision" has the meaning given by sub-section 14ZY(2). The words "taxation objection" have the meaning given by section 14ZL.
Section 14ZL of the Administration Act is a procedural provision with respect to provisions in other Acts, such as section 175A of the Assessment Act, enabling a person who is dissatisfied with an assessment to object against that assessment. Such an objection is called a "taxation objection" and must be brought in conformity with the provisions of Part IVC of the Administration Act. Under section 14ZU the person making the objection must make it in writing and lodge it with the Commissioner within the specified times. The objection must state fully and in detail, the grounds that the person making the objection relies on. Under section 14ZY, the Commissioner must decide whether to allow the objection, wholly or in part, or disallow it. That decision is called an "objection decision" and the person making the objection must be served with written notice of the objection decision. If the person who made the objection is dissatisfied with the Commissioner's objection decision known, for present purposes, as an appealable objection decision, that person has a choice under section 14ZZ.
One of the choices available is to appeal to the Federal Court of Australia against that appealable objection decision. Division 5 of Part IVC, commencing with section 14ZZN, applies with respect to appeals to the Federal Court. That section provides that an appeal to the Federal Court against an appealable objection decision must be lodged with the Court within a specified date. Under section 14ZZO, the person making the
appeal, unless the Court otherwise orders, is limited to the grounds stated in the objection to which the appeal relates and that person has the burden of proving that, if the taxation decision concerned was an assessment, the assessment was excessive, or, in an appropriate case, the taxation decision concerned should not have been made or should have been made differently.
On 13 September 1995 the Commissioner issued to the appellant six documents headed "NIL TAX ADVICE". They were issued under the Assessment Act and were for the years ended 30 June 1989, 1990, 1991, 1992, 1993 and 1994 respectively. Each document stated that the taxable income of the appellant was nil and that the tax on the taxable income was nil. Each then contained other figures claiming that the appellant owed the Commissioner $67411.53 with respect to liabilities earlier imposed. By notice in writing dated 10 November 1995, the appellant objected to each of these assessments. The objection, written in longhand, included the following:-
"Taxpayer hereby objects to the six assessment notices as detailed.
This letter is therefore 6 objections against the aforemention 6 Assessments all issued on 13th September 1995.
In particular taxpayer objects to "The Other Amounts Payable" on all six Assessments.
Taxpayer objects to the Amount Payable on all six Assessments.
Other amounts payable on all six Assessment Notices 1989 to 1994 inclusive should correctly be zero.
Amount Payable on all six Assessment Notices 1989 to 1994 inclusive should therefore correctly be zero.
Other amounts payable are amounts outstanding from prior year assessments."
Reference is then made to assessments made for the years ended 30 June 1983 to 30 June 1988 inclusive; and the objection continues:-
"It is clear that outstanding tax for all the prior years of 1983, 1984, 1985, 1986, 1987 and 1988 is nil.
Therefore there is no outstanding balance to carry forward onto any of the later years of 1989, 1990, 1991, 1992, 1993 and 1994.
All "other amounts payable" for these years are correctly zero.
Therefore also all "Amounts Payable" for these years of 1989, 1990, 1991, 1992, 1993 and 1994 are correctly zero.
Could you please therefore issue amended assessments for the years 1989, 1990, 1991, 1992, 1993 and 1994 to correctly show the balances of zero.
Thankyou for your assistance with this matter."
The Commissioner took the view that the nil tax advices were not assessments within the meaning of the Assessment Act and notified the appellant accordingly by a letter dated 20 November 1995 signed by his delegate. The relevant part of the letter was as follows:-
"INCOME TAX
Reference is made to your letter dated 10th November 1995.
The letter purports to be an objection against what you claim to be assessments for the years ended 30 June 1989 to 1994. As the notices that issued to you in respect of these years were not assessments as defined in section 6 of the Income Tax Assessment Act, you do not have any right of objection against them. Even if they were assessments, the amount shown as "other amounts payable" would not form part of the assessments and you would not have any objection rights in relation to these amounts. I would have thought that you, as a registered tax agent, should have known this."
The appellant claims that that letter constitutes an appealable objection decision under section 14ZZ of the Administration Act from which he can appeal to the Federal Court under section 14ZZO.
A reference to the appellant's objection dated 10 November 1995 makes it clear that he is not disputing the assessments, in the defined sense, for each of the six years 1989 to 1994. It is difficult to see how he could be dissatisfied with those assessments. Each showed that the appellant had no taxable income and so no tax liability on that income. His real objection was with respect to amounts claimed by the Commissioner as owing and arising with respect to previous years of income. Leaving aside for the moment the question of whether the nil tax advices were capable of constituting assessments within the meaning of that word as defined in the Assessment Act, the notices stated the ascertainment by the Commissioner of the taxable income of the appellant and of the tax payable for each of the six years. In this respect they constituted assessments; see Webb v Commissioner of Taxation (No.2) (1993) 47 FCR 394. The fact that the notices contained other accounting matters relating to the liability of the appellant to the Commissioner arising from other years of income does not affect the nature of the assessments; see Webb.
In Webb the assessments contained other accounting matters but his Honour held that this did not destroy the nature of the assessment. His Honour, at 401, gave a warning which should be noted and acted upon:-
"So to hold, however, does not mean that the document of 12 March 1990 was clear on its face or free from the potential to cause confusion. In my view it would be highly desirable that the Commissioner in any notice of assessment show only
those particulars which the Act contemplates should be shown in it, that is to say, the taxpayer's name (and perhaps address for service), the taxable income and the tax payable thereon: cf Prestige Motors Pty Ltd v Commissioner of Taxation (1993) 47 FCR 138 The document should not be used, in my view, as a statement of account, or, as in the present case, a partial statement of account, of the taxpayer's liability. If it be appropriate that there be a statement of account of a taxpayer's liability, then in my view it would be desirable that it be provided separately to the taxpayer."
The Commissioner contended that each of the six notices headed "Nil Tax Advice" could not be an assessment under section 166 of the Assessment Act. As a result, it was contended, section 175A of the Assessment Act has no application since there were no assessments with respect to which the taxpayer could be dissatisfied. It followed that the notices of objection purported to have been made by the appellant under Part IVC of the Administration Act were ineffective, there could be no taxation objections under section 14ZY of the Administration Act, the letter of the Commissioner dated 20 November 1995 could not constitute an objection decision under section 14ZY and thus could not constitute appealable objection decisions under section 14ZZN.
The law on this issue is clear. A nil assessment is an impossibility. This is discussed by Kitto J in Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 with whose reasons Menzies J agreed. That case involved the application of section 170 of the Assessment Act but the following passage at 251-2, based as it is on the definitions of "assessment", applies to the facts of this appeal:-
"The word "assessment" is defined in s.6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in s.170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because "ascertainment" is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the
amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s.204. Thus, and thus only, there is brought about an "ascertainment" of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see s.177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain. The word "ascertainment" being understood in this sense, the definition of "assessment" means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case."
See also per Owen J at 255-257.
The position is stated clearly by Tadgell J in Deputy Commissioner of Taxation v Sheehan (1986) ATC 4718 who, in discussing a contention that a nil assessment was an assessment under the Assessment Act, said at 4724:-
"I think I must hold the argument to be without foundation. It is sufficient to say that, in my opinion, it is foreclosed by the decision of Batagol v. Federal Commissioner of Taxation, some of the salient features of which I have already mentioned. The imposition of a liability is a necessary feature of an assessment under Part IV of the Act, and a nil assessment is an impossibility: see the judgment of Kitto J at p.251 of the report."
Accordingly, the provisions of the Administration Act have no application with respect to the six income tax years the subject of this appeal. The application to the Court made by the appellant was dismissed, quite correctly.
The appellant relied upon a further argument based upon the calculations in the notices headed "nil tax advice" relating to liability with respect to the other tax years and in particular the calculations relating to provisional tax. In my opinion these submissions must be rejected for the reasons already given. Further, I agree with the opinions expressed on this further argument as contained in the judgment of Lee and Finn JJ.
I would dismiss the appeal with costs.
I certify that this and the preceding nine pages are a true copy of the Reasons for Judgment of his Honour Justice Northrop.
Associate:
Date:
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY )
GENERAL DIVISION ) NO. WAG30 OF 1996
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA
B E T W E E N: EDWARD GEOFFREY STUART
Appellant
and
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
CORAM: NORTHROP, LEE, FINN JJ
DATE : 13 SEPTEMBER 1996
PLACE: PERTH
REASONS FOR JUDGMENT
LEE, FINN JJ:
The appellant appeals from the order made by a Judge of this Court (Carr J) that the application commenced by the appellant under the Taxation Administration Act 1953 as an "appeal" against an "appealable objection decision" be dismissed. At the hearing before his Honour the appellant was represented by counsel but appeared on his own behalf on the hearing of the appeal.
In about December 1991 the appellant received notices of assessments made by the respondent ("the Commissioner") of the taxable income of the appellant and of the tax payable thereon for the years of income ended 30 June 1985, 30 June 1986, 30 June 1987 and 30 June 1988.
The total amount of tax said to be payable under the four assessments was $81,133.53. The sum included an amount of $13,722 described as provisional tax payable for the year of income ending 30 June 1989. The provisional tax was calculated under ss221YA, 221YB and 221YC of the Income Tax Assessment Act 1936 ("the Act") and, pursuant to sub-s221YD(1) of the Act, was notified in the notice of assessment of income tax issued for the year of income ended 30 June 1988.
Each notice of assessment bore a date of issue 30 October 1991, and a statement that the "Balance of this Assessment" was due for payment on 5 December 1991. Pursuant to s204 of the Act "income tax assessed" is due and payable by the person liable to pay the tax on the date specified in the notice as the date on which tax is due and payable, not being less than 30 days after the service of the notice, or if no date is specified, on the 30th day after the service of the notice. Sub-section 221YD(1) provides that the due date for payment of provisional tax is the date specified in the notice as the date on which tax is due and payable.
It was not clear whether the Commissioner contended that the notices of assessment were served not less than 30 days before 5 December 1991. If service was not effected until December 1991 the due date for payment of tax would have been a date no earlier than a date in January 1992.
Sub-section 221YA(2) states that the provisions of s207 in respect of the payment of additional tax by way of penalty on tax unpaid after the date on which it has become due and payable apply to provisional tax.
Neither the tax assessed for the year ended 30 June 1988, nor provisional tax for the year ending 30 June 1989, was paid on 5 December 1991 or thereafter.
After receiving the notice of assessment for the year ended 30 June 1988 in December 1991 the appellant did not seek to rely on the provisions of s221YDA of the Act by forwarding to the Commissioner an estimate of his taxable income for the year ending 30 June 1989 and thereby varying to nil the amount of provisional tax made payable on the due date by the notice of assessment.
The appellant lodged an objection to each of the four assessments on 20 December 1991. He filed an income tax return for the year ending 30 June 1989 on 5 August 1993. That return showed that the appellant had no taxable income for that year. On the same date income tax returns were filed for the years of income ended 30 June 1990, 30 June 1991 and 30 June 1992. Income tax returns for the years of income ended 30 June 1993 and 30 June 1994 were filed on 20 May 1994 and 17 March 1995 respectively.
On 13 September 1995 the Commissioner issued notices in respect of the years of income 30 June 1989 to 30 June 1994 inclusive headed "NIL TAX ADVICE". The relevant part of the notice for the year ended 30 June 1989 read as follows:
"Income Tax Assessment Act 1936
NIL TAX ADVICE
For the year ending 30 June 1989 (or substituted accounting period)
Your Taxable Income is nil $ ¢
Tax on Taxable Income A 0.00 Credit for 1989 Provisional Tax F 13722.00CR
Balance of this Assessment L 13722.00CR
Other amounts payable 81133.53DR
Amount payable 67411.53DR
**** Due date for payment of $67411.53 ****
**** is as previously advised ****
********* Additional Information ********
PLEASE SEE THE REVERSE FOR IMPORTANT INFORMATION ABOUT YOUR ASSESSMENT."
The relevant part of the notices for the succeeding years of income read as follows:
"Income Tax Assessment Act 1936
NIL TAX ADVICE
For the year ending 30 June 1990 (or substituted accounting period)
Your Taxable Income is nil $ ¢
Tax on Taxable Income A 0.00 Balance of this Assessment L 00.00CR
Other amounts payable 67411.53DR
Amount payable 67411.53DR
**** Due date for payment of $67411.53 ****
**** is as previously advised ****
********* Additional Information ********
PLEASE SEE THE REVERSE FOR IMPORTANT INFORMATION ABOUT YOUR ASSESSMENT."
In s166 of the Act the Commissioner is directed to make an assessment of the taxable income of a taxpayer and the tax payable thereon from the return furnished to the
Commissioner by a taxpayer pursuant to s161 of the Act. It may be noted that under s166 of the Act the process of assessment to be undertaken by the Commissioner has two parts, namely, an assessment of the taxable income and an assessment of the tax payable thereon. The Commissioner contends that the notices forwarded to the appellant did not give notice to the appellant that the Commissioner had made such an assessment from the returns filed by the appellant.
The Commissioner relied upon the reasoning of the High Court in Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 to contend that notices headed "Nil Tax Advice" did not inform the appellant that assessments had been made under s166 of the Act. His Honour accepted that the decision in Batagol obliged him to conclude that the notice described as a "Nil Tax Advice" was not notice of an assessment and, therefore, that the proceeding commenced by the appellant was incompetent. We note, as did Hill J in Webb v Deputy Federal Commissioner of Taxation (No. 2) (1993) 47 FCR 394 at 399, that Batagol dealt only with the meaning of "assessment" as used in s170 of the Act. For the reasons that follow it is unnecessary to decide whether Batagol established the meaning of "assessment" as used in s166 of the Act.
It is clear that amounts made due and payable by prior notices of assessments are not part of the assessment of taxable income or of tax payable in a later year of income and
accordingly details of those amounts, described as "Other amounts payable", are not part of a notice of assessment. The use of a notice of assessment to set out a statement of a taxpayer's account with the Commissioner may cause confusion and such a statement should be recorded in a separate document. (See: Webb per Hill J at 401.)
On 10 November 1995 the appellant purported to lodge objections to the "assessments" he claimed had been issued in respect of the years of income ended 30 June 1989 to 30 June 1994 inclusive. In each case the ground of objection was as follows:
"In particular taxpayer objects to The Other Amounts Payable on all 6 assessments.
There is no basis for these amounts and no attached documentation has been received for these amounts."
There was no objection to an "assessment" that the appellant's taxable income was nil and that no tax was payable by the appellant.
By letter dated 20 November 1995 the Commissioner advised the appellant that the purported "objections" lodged by the appellant were of no effect and no "objection decision"
would be made by the Commissioner.
The Commissioner's response was correct. The appellant was not dissatisfied with an "assessment" that decided that the appellant had no taxable income and that no tax was payable. The appellant did not contend that such an "assessment" was excessive. Therefore, the appellant made no "taxation objection" as defined in s14ZL of the Taxation Administration Act 1953. (See also: ss14ZZK, 14ZZO.) No objection having been lodged under the Act the proceeding commenced in this Court in respect of an "appealable objection decision" was incompetent.
The point the appellant sought to raise in that proceeding had no connection with the "assessments". The appellant submitted to his Honour that he had no taxable income in the year of income ended 30 June 1989 and, therefore, when the notice of assessment for the year of income ended 30 June 1988 was issued in October 1991 provisional tax could not be collected under the Act in respect of the year of income ended 30 June 1989. The appellant argued that any sum sought to be recovered as provisional tax in the notice of assessment issued for the year ended 30 June 1988 had to be excised from the amount of tax made payable by that notice. Therefore, the appellant submitted, no additional tax became payable on the amount of provisional tax notified in that notice of assessment.
Given that the notice "Nil Tax Advice" for the year ended 30 June 1989 stated that the due date for payment of the amount of tax payable by the appellant, being an amount from which the sum notified as provisional tax had been excised, was the due date notified in the notice of assessment for the year ended 30 June 1988, namely, 5 December 1991, the Commissioner's advice to the appellant may have given the appellant some ground for that belief.
It appears, however, that a sum of $4,101.19 was demanded from the appellant by way of additional tax on the amount of provisional tax notified in the notice of assessment issued for the year of income ended 30 June 1988. The additional tax was calculated for the period which passed between 6 December 1991 (the day after the due date for payment of the tax specified in the notice of assessment) and 5 August 1993 (the date of lodgment of the income tax return for the 1989 year of income).
His Honour stated that it could be expected that irrespective of the outcome of the appellant's objections to the assessments of tax made for the years of income 1983 to 1988 the Commissioner would not continue to claim that additional tax was payable by the appellant on the amount of provisional tax sought to be collected from the appellant by the notice of assessment for the year ended 30 June 1988, given that it had been shown that the appellant was not a
taxpayer liable to pay income tax in the year ended 30 June 1989 as required by sub-s221YB(1) of the Act. The Court was informed that events have not followed the path his Honour forecast.
The appeal must be dismissed.
I certify that this and the preceding eight pages are a true copy of the Reasons for Judgment of their Honours Justice Lee and Justice Finn.
Associate:
Date:
APPEARANCES
Applicant appeared in person.
Counsel for the Respondent: L.B. Price
Solicitor for the Respondent: Australian Government Solicitor
Date of Hearing : 17 July 1996
Date of Judgment : 13 September 1996
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