Taylor v. Deputy Federal Commissioner of Taxation.

Judges: Woodward J
Northrop J

Jenkinson J

Court:
Full Federal Court of Australia

Judgment date: Judgment handed down 20 May 1987.

Jenkinson J.: Case stated pursuant to sec. 25(6) of the Federal Court of Australia Act 1976.

On 30 June 1980 the applicant became a bankrupt and on 30 June 1985 he was discharged from that bankruptcy. Assessment was made by the respondent of the taxable income derived by the applicant in the year ended 30 June 1980 and of the tax payable thereon. The latter sum was $2224.39. Notice of the assessment dated 28 June 1985 specified 31 July 1985 as the date upon which the tax should be due and payable. At about the same time assessment was made by the respondent of the taxable income derived by the applicant in the year ended 30 June 1982 and in the year ended 30 June 1983 and, in each case, of the tax payable thereon. (The assessment in respect of the year ended 30 June 1982 was an amended assessment.) In each case notice of the assessment was dated 28 June 1985 and 31 July 1985 was the date specified in the notice as that upon which the tax should be due and payable. But no tax was payable, because in each case the respondent had received from the applicant, pursuant to the provisions of Div. 2 of Pt VI of the Income Tax Assessment Act 1936, tax stamps sheets or group certificates representing deductions, made in that year of income, from the applicant's salary or wages, which exceeded in amount the tax payable. In each case the respondent credited, in obedience to the command expressed in sec. 221H(2)(b) of that Act, so much of the amount represented as having been deducted as was required in payment of the tax. What then remained of those amounts represented as having been deducted - $598.10 in the case of the year of income ended 30 June 1982 and $1626.29 in the case of the year ended 30 June 1983 - the respondent credited in payment of the tax which in the respondent's opinion was payable by the applicant in respect of the year of income ended 30 June 1980. The tax assessed to be payable in respect of the latter year ($2224.39) was upon a taxable income assessed in exercise of the power conferred by sec. 167 of the Income Tax Assessment Act 1936 and was exactly equal in amount to the aggregate of the two amounts of $598.10 and $1626.29. Section 167 provides:

"If -

  • (a) any person makes default in furnishing a return; or
  • (b) the Commissioner is not satisfied with the return furnished by any person; or
  • (c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income,

the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166."

Subsections 221H(1)-(5) provided, at relevant times, as follows:

"(1) An employee shall forward any tax stamps sheet and any group certificate issued to him in respect of deductions made in any year of income from his salary or wages to the Commissioner with the return which he is required under section 161 to furnish in respect of that year of income.

(2) Where the Commissioner receives from an employee a tax stamps sheet or a group


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certificate, or both, in respect of deductions made in any year of income from his salary or wages, and the tax payable by the employee in respect of that year of income has been assessed, the Commissioner shall -
  • (a) if the sum of the amount represented by the face value of the tax stamps duly affixed to any such tax stamps sheet and the amount of the deductions shown in any such group certificate does not exceed the tax payable by the employee in respect of that year of income - credit that sum in payment or part payment of that tax;
  • (b) if that sum exceeds that tax - credit so much of that sum as is required in payment of that tax any other tax payable by the employee, and pay to the employee an amount equal to any excess; or
  • (c) if he is satisfied that there is no tax payable by the employee - pay to the employee an amount equal to that sum.

(3) If the amount credited by the Commissioner in pursuance of the foregoing provisions of this section is less than the amount of tax payable by the employee, the Commissioner may credit in payment or part payment of that tax an amount equal to the face value of any tax stamps duly affixed to any other tax stamps sheet received by him from the employee or an amount equal to the amount of any deduction shown in any other group certificate received by him from the employee if he is satisfied that it is desirable to do so by reason of special circumstances and that the amounts of the deductions, not so credited, which have been, or will have been, made from the salary or wages of the employee prior to the close of the year of income to which that other tax stamps sheet or group certificate relates will be sufficient to pay the tax payable by the employee in respect of that year of income.

(4) If the amount credited by the Commissioner in pursuance of the foregoing provisions of this section is less than the amount of tax payable by the employee -

  • (a) the Commissioner shall apply the amount so credited in payment, so far as that amount extends, of such tax payable by the employee as the Commissioner determines and that amount shall be deemed to have been paid by the employee in satisfaction, to that extent, of that tax, and not otherwise; and
  • (b) the employee shall be liable or continue to be liable (as the case may be) to pay the remainder of the tax payable by the employee on the date or dates specified in the notice or notices of assessment.

(5) Where in pursuance of sub-section (3), the Commissioner credits in payment or part payment of any tax payable by the employee part only of the amount represented by the face value of the tax stamps affixed to a tax stamps sheet or of the amount of any deductions shown in a group certificate, he shall pay to the employee an amount equal to so much of the face value of the tax stamps or of the amount shown in the certificate, as the case may be, as is not so credited."

Subsection 221A(1) provided that, unless the contrary intention appeared, the expression "tax payable by the employee" should mean in the said Div. 2 of Pt VI, wherein sec. 221H is found:

"income tax (including tax under a State income tax law) that is or may become due and payable by an employee under an assessment (including an assessment under a State income tax law) made or to be made on a return that he has furnished, or has been or may be required to furnish, or under an assessment (including an assessment under a State income tax law) made or to be made in default of any such return."

The respondent carried out the function, which he thought was ordained by sec. 221H(2)(b), of crediting so much of the "sum of the amount represented by the face value of the tax stamps... and the amount of the deductions shown in any... group certificate" as was required in payment of the income tax assessed in respect of the year ended 30 June 1980, on or perhaps before 28 June 1985. That was the date on which notices of the relevant assessments were said in the case to have been issued. There is no reference in the case to service of any notice of assessment. Having regard to the terms of sec. 174(1) and 204, it is only by resource to the


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extended meaning of the expression "tax payable by the employee", as defined in sec. 221A(1), that the income tax assessed in respect of the year ended 30 June 1980 - the sum of $2224.39 - could have been regarded on 28 June 1985 as "any other tax payable by the employee", for the purposes of sec. 221H(2)(b). Section 174(1) provides:

"As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax."

Section 204 provides:

"(1) Subject to the provisions of this Part, any income tax assessed shall be due and payable by the person liable to pay the tax on the date specified in the notice as the date upon which tax is due and payable, not being less than 30 days after the service of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.

(2) In sub-section (1), `income tax' includes additional tax under Part VII."

On 28 June 1985, when the respondent may be taken to have credited the $2224.39 in payment of the tax assessed to be payable on the taxable income derived in the year ended 30 June 1980, than tax fell within the definition of the expression "tax payable by the employee", as "income tax... that... may become due and payable by an employee under an... assessment... made in default of any such return."

The case stated is intended to secure an answer to the question whether the respondent acted in accordance with law in making that credit or whether the law required that he pay $2224.39 to the applicant, pursuant to sec. 221H(2)(b).

The case for the applicant rested on two general grounds. It was submitted by Mr Bigmore on his behalf that, because the tax assessed in respect of the year ended 30 June 1980 was a debt provable in his bankruptcy, that tax could not be regarded as "payable by" him, for all rights and remedies which would have been available to his creditor had been taken away by his bankruptcy and the creditor had in lieu thereof only a right of proof against his bankrupt estate, not a right to payment of the tax. It was further submitted that what the respondent had done in purporting to credit $2224.39 in payment of the tax assessed was to enforce a remedy against the property of the bankrupt in respect of a provable debt, contrary to the provisions of sec. 58(3)(a) of the Bankruptcy Act 1966.

The first submission amounts to a denial that a debt provable in bankruptcy is subject to the operation of sec. 221H(2). In my opinion a general consideration of Div. 2 of Pt VI of the Income Tax Assessment Act 1936, in which that section falls, suggests a legislative intention that the operation of the Division should be independent of the operation of bankruptcy law in relation to those who are within the definition of "employee" for the purposes of Div. 2. In the first place, Div. 2 is concerned with moneys deducted from personal earnings, which are not as such subject to the operation of bankruptcy law, except by a discretionary order of a court exercising jurisdiction in bankruptcy. (See Bankruptcy Act 1966, sec. 131 and compare
F.C. of T. v. Official Receiver (1956) 95 C.L.R. 300.) Second, the legislative scheme, enacted in order to secure the revenue, is yet framed in such a way as to protect the employee against loss in consequence of misfeasance by the employer. The employee is given a credit measured, not by the amount deducted and actually coming into the consolidated revenue fund, nor by the amounts in respect of which the employer issues a group certificate and delivers a tax stamps sheet, but by the amount actually deducted by the employer: see sec. 221Q and 221H. Thus the crediting in payment of tax may be at the cost of the revenue. Third, there may be a discharge of a liability to pay tax, by the crediting for which sec. 221H makes provision, before the tax has become due and payable. The facts of this case afford an example of that. These features of Div. 2 indicate, in my opinion, a scheme designed to utilise the amounts deducted in a process of precisely prescribed set-off which is to be completed without regard to what might otherwise be the operation of the bankruptcy laws in relation to the employee. Whatever remains unpaid at the conclusion of that process will be the measure of any provable debt, in my opinion. In F.C. of T. v. Official Receiver (1956) 95 C.L.R. 300 at p. 323 Fullagar J., in whose judgment Dixon C.J.


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concurred, observed of the scheme ordained by Div. 2 of Pt VI:

"The scheme involves the imposition of duties upon a particular class of taxpayers, upon their employers, and upon the Commissioner. The scheme is such that it is inevitable that, at the end of a financial year, it will be found that some taxpayers of that class have paid too much tax, so that a refund to them is necessary. It is prima facie very unlikely that, when such a refund comes to be made, it should be intended that the Commissioner should have to concern himself with such things as assignments, charges, bankruptcies or executions, with questions of validity and questions of priority. From the point of view of the legislature it is all a matter between the Commissioner and the taxpayer, and the improbability of such an intention is increased by the direction of official secrecy which is contained in sec. 16 of the Act."

Those observations were made in resolution of a case in which there was not any tax in respect of a year of income other than that in which the deductions in question had been made, and a case in which there was an excess of what had been deducted over what was due for tax. But in my opinion it is true to say that, when what is in question is the applicability of that part of para. 221H(1)(b) which addressed to "any other tax payable by the employee", it is again "prima facie very unlikely that... it should be intended that the Commissioner should have to concern himself with such things as assignments, charges, bankruptcies or executions, with questions of validity and questions of priority."

The submissions of Mr Bigmore emphasised the contention that a provable debt could not be described as "payable". As was said in
Clyne v. D.F.C. of T. (1984) 154 C.L.R. 589 at pp. 594-595, the "effect of the bankruptcy... is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so". But in the phrase in para. 221H(2)(b), "any other tax payable by the employee", there is not signified only an immediately enforceable obligation to pay. So much is clear in my opinion from the terms of the definition of the phrase "tax payable by the employee", in sec. 221A(1). The phrase should in my opinion be understood as comprehending an obligation, imposed on an employee by the income tax legislation, which an assessment quantifies, whether or not the obligation has become enforceable in consequence of the arrival of the date specified by sec. 204(1), and whether or not the obligation has been suspended by the operation of bankruptcy legislation.

The process ordained by sec. 221H are not in my opinion comprehended by sec. 58(3)(a) of the Bankrupt Act 1966, which provides:

"Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor -

  • (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt;"

The money deducted by the employer loses its identity upon payment into the consolidated revenue fund. It was not any property of the applicant bankrupt which was made the subject of the processes carried out by the respondent on 28 June 1985 in obedience to the commands expressed in sec. 221H(2)(b). If there had remained "any excess", within the meaning of that expression in sec. 221H(2)(b), the payment to the applicant directed by that paragraph would have been, not of money the property of the applicant before payment, but of money payable out of the consolidated revenue fund under the authority of sec. 16 of the Taxation Administration Act 1953.

Mr Bigmore relied upon the reasoning of Smithers J. in
Re Mondin (1985) 6 F.C.R. 430; 60 A.L.R. 439 and on observations by Williams and Fullagar JJ. in F.C. of T. v. Official Receiver, supra, to some of which Smithers J. referred. It was submitted, by reference to those authorities, that the right of the applicant to receive "an amount equal to any excess", within the meaning of that phrase in sec. 221H(2)(b), was a chose in action, and so property an opinion on the submission. If its correctness be assumed, yet the processes of crediting which the respondent undertook on 28 June 1985 did not in my opinion amount to the enforcing of a remedy against that property. Those processes were part of the statutorily prescribed steps by which the value of the chose in action was to be ascertained. In this particular case the taking of those steps produced the result that the chose in action was disclosed to be of no value and its existence thereupon terminated.


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The case was stated in an application for an order of review in respect of the respondent's decision to credit the amounts aggregating $2224.39 in payment of the tax assessed in respect of the year ended 30 June 1980. The first question contained in the case is whether the respondent is bound to pay that sum of $2224.39 to the applicant. Being of the opinion, for the foregoing reasons, that the respondent's decision was in conformity with what the law required, I would order that the first question be answered "No". The second question is what orders (including orders as to costs) should be made in respect of the application. I would not answer that question. Having only the case stated formally before it, this Court can have no judicial knowledge of the course which the proceeding has taken, or whether questions fall for determination in the proceeding other than that which the statement of facts raises. By a concluding recital of an agreement between the parties an attempt appears to have been made to enable this Court to answer the second question. The draftsman may have had in mind the practice of superior courts of general jurisdiction which found expression in provisions such as O. 34 r. 6 of the General Rules of Procedure in Civil Proceedings 1985 of the Supreme Court of Victoria:

"The parties to a special case may, if they think fit, enter into an agreement in writing that, upon the judgment of the Court being given in the affirmative or negative of the question or questions of law raised by the special case, a sum of money, fixed by the parties or to be ascertained by the Court or in such manner as the Court may direct, shall be paid by one of the parties to the other of them, either with or without costs of the cause or matter; and the judgment of the Court may be entered for the sum so agreed or ascertained, with or without costs (as the case may be), and execution may issue forthwith upon such judgment unless otherwise agreed or unless stayed on appeal."

But no such a practice has been prescribed for this Court. In any event, the recital is not free of ambiguity, in my opinion, and would not justify our answering the second question.

Nothing has appeared to me to justify departure from an exercise of the discretion as to the costs of the proceedings before this Full Court in favour of the party which was successful before us: I would order that the respondent's costs of the case stated be paid by the applicant.

THE COURT ORDERS THAT:

A. The questions in the case stated be answered as follows:

  • 1. Is the respondent bound to pay to the applicant the sum of $2224.39?
  • Answer. No.
  • 2. What orders, including orders as to costs, should be made in respect of the application?
  • No answer is given.

B. The respondent pay the applicant's taxed costs of the case stated.


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