FC of T v RYAN
Judges:Gleeson CJ
Gummow J
Kirby J
Hayne J
Callinan J
Court:
High Court
MEDIA NEUTRAL CITATION:
[2000] HCA 4
Gleeson CJ, Gummow and Hayne JJ
The respondent (``the taxpayer'') lodged a return of her income for the year ending 30 June 1987 in which she stated her taxable income for the year to be $4,470, an amount below the threshold at which income tax was levied. On 11 December 1987, the appellant (``the Commissioner'') issued to the taxpayer a document entitled ``Refund Notice'', which stated that the tax on her taxable income was ``$0.00'' and that the ``Amount of Refund'' was $3,653.40. (It is convenient to refer to this notice as the ``1987 notice''.)
2. More than six years later, on 11 February 1994, the Commissioner issued to the taxpayer a Notice of Assessment for the year ended 30 June 1987 stating that her taxable income had been assessed to be $14,470 and that tax, Medicare levy and additional tax in stated amounts were payable. (It is convenient to refer to this assessment as the ``1994 assessment''.) An adjustment sheet accompanying the 1994 assessment said that a deduction of $10,000 claimed by the taxpayer in her 1987 return had been disallowed.
3. The taxpayer objected to the 1994 assessment. She contended that she had made a full and true disclosure to the Commissioner of all the material facts necessary for the Commissioner's assessment, that the 1987 notice was an assessment made after that disclosure, and that it followed that the Commissioner was not authorised to issue the 1994 assessment. The objection was disallowed by the Commissioner and then, at the request of the taxpayer, the Commissioner's decision was referred to the Administrative Appeals Tribunal.
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4. The taxpayer's contention that the Commissioner was not authorised to issue the 1994 assessment was upheld by the Federal Court both at first instance
[2]
The statutory provisions
5. Section 166 of the Income Tax Assessment Act 1936 (Cth) (``the Act'') provided (at the time relevant to the issues in this appeal) that:
``From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.''
It will be noted that this section contains no reference to any time within which the Commissioner must complete the task of making an assessment of a taxpayer's taxable income and of the tax payable thereon.
6. ``Assessment'' is defined by s 6(1) of the Act as meaning (unless the contrary intention appears):
``(a) the ascertainment of the amount of taxable income and of the tax payable thereon; or
(b) the ascertainment of the amount of additional tax payable under a provision of Part VII.''
It will be noted that par (a) of this definition refers to the ascertainment of two amounts: the amount of taxable income and the amount of the tax payable thereon. There is an evident parallel between this provision and the reference in s 166 to ``an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon''.
7. Section 170(3) of the Act was central to the taxpayer's contentions. It provided (at the relevant time) that:
ATC 4082
``Where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment is made after that disclosure, no amendment of the assessment increasing the liability of the taxpayer in any particular shall be made after the expiration of 3 years from the date upon which the tax became due and payable under that assessment.''
The taxpayer's contentions
8. In this Court the taxpayer maintained the contentions that she had made below. In particular, she submitted that in 1987 the Commissioner had made an assessment of her taxable income for the year ending 30 June 1987 and of the amount of tax payable thereon. It being accepted that she had made a full and true disclosure of all the material facts, she submitted that s 170(3) precluded the Commissioner from amending that assessment in 1994. The taxpayer submitted that the period identified in s 170(3) had elapsed three years from the date which was the thirtieth day after the 1987 notice was served. The 30 day period was said to be fixed by s 204(1) of the Act. That sub-section (contained in Pt VI of the Act) provided that:
``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.''
The decisions below
9. The primary judge, Spender J, described the issue for his decision as being whether the 1987 notice was an assessment under s 166 of the Act ``with the consequence that the time limits under s 170 commence to run from the prescribed period after service of the notice''.
[4]
``... [ T]o require `the ascertainment of the tax payable' to be a positive number is an impermissible gloss on the definition of assessment in s 6(1) of [ the Act]. The ascertainment of the tax payable as zero is no less an ascertainment within the definition as is the ascertainment of the tax as a non-zero number.
The number zero is the beginning of and hence the first number of, and included in, the domain of natural numbers.
...
In the domain of the integers, the number line unarguably contains zero. That is, zero is a number, sum or amount, and an assessment of zero dollars is an assessment of a sum or amount of tax.''
10. In the Full Court, Merkel J (with whose reasons Burchett and French JJ agreed) said
[6]
11. First, his Honour considered that the legislative policy behind s 170 of the Act was one of giving taxpayers certainty and finality. It followed, in his opinion, that:
[9]
``... Once it is accepted that, in general, an `assessment' for the purposes of the Act fixes the taxpayer's liability to tax there is no reason why the statutory policy of certainty and finality should not apply to it
ATC 4083
irrespective of the quantum (if any) of the liability.''
12. Secondly, Merkel J noted
[10]
The statutory power to issue the assessment
13. Framing the issue for consideration as whether a ``nil assessment'' is an assessment of the tax payable on the taxable income of the taxpayer, or as whether zero is a number, sum or amount, distracts attention from the real issue. Similarly, to speak in terms of a ``notional date'' for payment may obscure more than it illuminates. The central question is whether the Commissioner's power under s 166 to make an assessment of the amount of taxable income of the taxpayer, and of the tax payable thereon, is restricted. The only restriction which was said to be relevant was that provided by s 170(3).
14. Section 170(3) contained several elements. There must have been a full and true disclosure by the taxpayer and there must have been ``an assessment... made after that disclosure''. But what is important for present purposes is that, after the expiration of the specified period, s 170(3) precluded any amendment of the assessment which increased the taxpayer's liability. The question in the present appeal becomes, therefore, whether the time fixed by s 170(3) had run. Had ``3 years from the date upon which the tax became due and payable under that assessment'' elapsed?
15. At the very least, language is strained by saying that tax becomes ``due and payable'' on a particular date in circumstances where the Commissioner has issued a document informing the taxpayer that the Commissioner has determined that the taxpayer owes no amount for tax. No amount of teasing of the words of s 170(3), or of the words of s 204, can reduce, let alone eliminate, that strain. Whatever may be the elasticity of the expression ``the date upon which the tax became due and payable'', it does not, and cannot, accommodate the case where no tax is due and payable. Nor do the words of s 204, when read and understood in their context, enable any such accommodation.
16. Section 204 is one of the group of provisions in Pt VI of the Act which is directed to making the amount which a taxpayer owes for tax a debt which can be recovered by the ordinary legal processes for recovery of debts. Although the time determined in accordance with s 204 is used as a point of reference in s 170(3), it is important to keep well in mind that the subject-matter dealt with by s 204, and the sections to which it is most immediately related, is the recovery of debts. To speak of a ``notional'' date being fixed by s 204 for the purposes of s 170(3) is to misunderstand the purpose of s 204. Its purpose is to fix a time in particular circumstances and for a particular reason. The circumstances in contemplation are that the Commissioner has determined that a taxpayer owes an amount for tax and the reason for fixing a time is to identify when that amount must be paid and, if not paid, can be sued for. Once that is understood, it can be seen that s 204 is not apt to fix a date (even a ``notional'' date) from which the time prescribed by s 170(3) can begin to run unless the Commissioner has determined that the taxpayer owes some amount for tax. If the Commissioner has determined that no tax is owed, time does not begin to run under s 170(3).
17. The taxpayer submitted that there were two considerations (both identified and relied on by Merkel J) which should lead the Court to reject this construction of s 170(3). The first was said to be the need for, and what was said to be the evident legislative policy of, certainty and finality. The second was the legislative history of s 204. We deal with each in turn.
Certainty and finality
18 Although put in various ways, the taxpayer's contention was that it was ``unjust'' or ``incongruous'' or ``absurd'' if a taxpayer assessed to $1 tax could not be reassessed after the expiration of three years from the date on which the tax was due and payable, but a
ATC 4084
taxpayer who had been told by the Commissioner that nothing was owed, ``remained at risk'' without any limit of time.19. There are several features of this contention that should be noted. First, it assumes that the Act adopts as a general policy or overall intention that ``certainty and finality'' be reached after a time. But the question for decision is what are the circumstances in which an amended assessment may lawfully be issued? That question is not answered by asserting the existence of any ``policy'' or ``general intention'' unless that policy or intention is to be found reflected in the provisions of the Act. Appeals to general notions of ``fairness'' or ``justice'' do no more than attempt to mask the absence of any foundation in the legislation for the conclusion which is asserted.
20. Further, since
Batagol
was decided, there have been committees of inquiry into taxation law which considered (among many other things) whether there should be a change in the law established in that case.
[13]
21. In addition, any search for some unifying policy in the Act favouring certainty and finality must seek to accommodate the decision of this Court in
DFC of T v Moorebank Pty Ltd
.
[14]
22. Secondly, it is important to recall the ``risk'' to which it is said that a taxpayer is exposed if s 170(3) is not construed as the taxpayer contended it should be. The risk is that taxpayers will be called on to pay amounts that are lawfully due under the statute. In those circumstances, applying the word ``risk'' may be seen to carry with it some unwarranted pejorative connotation. Nevertheless, it must be recognised that the call may be made well after the year of income concerned. This may well cause hardship, or at least inconvenience, to a taxpayer who has ordered his or her affairs on the basis of the Commissioner's earlier statement that nothing was owed. But hardship or inconvenience is seldom, if ever, sufficient reason for not complying with a statutory obligation. Further, insofar as the argument seeks to suggest that the Commissioner should be precluded from assessing what is due, it is a proposition that encounters the serious difficulties that lie in the way of applying doctrines of estoppel in circumstances of this kind.
[15]
23. Thirdly, any desire of the taxpayer to bring matters to a conclusion could have been met by resort to s 171 of the Act. As Merkel J noted:
[16]
``Section 171(1) provided for a taxpayer to request the Commissioner to make an assessment if the taxpayer has duly furnished a return in respect of a year of income and no notice of assessment has been served within twelve months thereafter. If the Commissioner fails to comply with the request within three months, s 171(2) provides that any assessment issued thereafter in respect of the year of income is deemed to be an amended assessment issued on the last day of the three month period. As an amended assessment, the assessment must be authorised by s 170. The section enables a taxpayer who has furnished a return to take steps which would lead to time running for the purposes of s 170.''
24. It was suggested in argument that taxpayers have chosen not to use this provision. Even so, it does not mean that no significance is to be attached to s 171. A taxpayer who was told by the Commissioner that no tax was due could, by this section, obtain the certainty and finality which this branch of the taxpayer's argument contended must be found in the Act. That being so, it is unnecessary to strain the words of ss 170(3) and 204 to achieve the result which it was asserted that the legislature must be taken to have intended. Section 171 is a sufficient answer to the taxpayer's arguments based on fairness and the need for certainty and finality.
Legislative history
25. The taxpayer submitted that an explanatory note appended to the Bill which introduced what became s 171 proceeded from an assumption that assessments were always issued in respect of what were referred to as ``non-taxable returns''. The note read:
[17]
ATC 4085
``In practice, the Department concentrates on the examination and assessment of returns which disclose a taxable income, and the revision of non-taxable returns is, in many cases, deferred. As a result, assessments are at times issued in respect of these returns at a much later date . The final examination of all non-taxable returns concurrently with taxable returns would result in a considerable increase in departmental expenditure. Clause 172 will, however, cover special cases, and will permit of the fixing of a time limit for the issue of any assessment after the date of the taxpayer's request.''
(Emphasis added)
It is enough to say that the note does not assume that assessments issued in respect of all non- taxable returns. Rather, it addresses the consequence of issuing, ``at a much later date'', an assessment in respect of a return which on its face was non-taxable but on examination was found to warrant a positive assessment. The note to the Bill does not assist the taxpayer's contentions.
26. Section 204 of the Act was amended, in 1954, by adding to it the words which dealt with the case where a notice of assessment stated no date as the date on which tax was due and payable. But, importantly, the effect of this amendment was that the Commissioner was no longer obliged to specify in every assessment a due date for payment.
27. The Treasurer, Sir Arthur Fadden, explained the need for the amendment in the following terms:
[18]
``The only other provision that it is necessary to mention is a proposed amendment to section 204 of the principal act. As now enacted, that section provides that income tax assessed shall be due and payable on a date specified in the notice of assessment, but not less than 30 days after service of that notice. By reason of credits for provisional tax paid or for tax instalments deducted from earnings, many notices of assessment show, instead of an amount payable by the taxpayer, a refund due to him. As it is inappropriate in such instances to specify in the notice a due date for payment, the proposed amendment will authorise the omission of this particular from the notice. However, the omission would affect the operation of those provisions of the principal act that authorise the amendment of assessments within three years - or, in some instances, six years - from the date on which the tax became due and payable under the assessment. I refer to both amendments that have the effect of increasing the tax in the original assessment, and those that have the effect of reducing that tax. If no date were specified in the notice of assessment, there would be no commencing point for the period within which the assessment might be amended. It is proposed, therefore, that, where no date is specified in the notice of assessment, the thirtieth day after service of the notice shall be a notional due date for payment, from which the period for amendment of the assessment may be reckoned. This amendment will effect a saving in administration without inconvenience or detriment to taxpayers.''
The Treasurer mentioned two kinds of case: where credits for provisional tax paid, or tax instalments deducted, exceeded the amount of tax assessed. It was in this context that reference was made to ``a notional due date for payment, from which the period for amendment of the assessment may be reckoned''. But in both the cases mentioned by the Treasurer, the Commissioner had assessed an amount of tax as due in respect of the year of income in question. That amount of tax was satisfied by the application of money already received by the Commissioner and thus, at the time the assessment issued, there was an application of those credits in satisfaction of the amount which the Commissioner claimed to be due. But the application of credits in this way must not be permitted to obscure that there had been an assessment by the Commissioner that a sum for tax was due and payable.
28. The taxpayer sought to extrapolate from the Second Reading Speech a general proposition about the applicability of a ``notional'' date for payment to all cases in which no sum must be outlaid in response to a notice that the Commissioner has determined the sum of tax (if any) attracted by a taxpayer's assessed income. Such a general proposition pays insufficient regard to the differences between cases where tax has been assessed to be payable and those where it has not.
29. The construction of the Act for which the appellant contends strains the words of s 170(3) (and s 204) beyond any reasonable degree of
ATC 4086
elasticity that they might be said to have. If no tax is payable in respect of a year of income it cannot be said that there is a date (even a ``notional'' date) by which it is due and payable.30. For the reasons that we have given it follows that s 170(3) did not apply to bar the Commissioner from issuing the 1994 assessment. Moreover, that this was so was clearly established by earlier authority including, in particular, this Court's decision in Batagol , a decision which the Federal Court was bound to apply.
Batagol
31. Until the present case, the understanding of the operation of the Act which the Commissioner contended
Batagol
revealed, had generally been accepted and acted upon both in this Court and in other Australian courts.
[19]
32. In April 1955, the Commissioner sent to the taxpayer a ``refund advice'' and a cheque for an amount equal to the instalments of tax that had been deducted from sums earned by the taxpayer during the 1954 tax year and remitted to the Commissioner. The refund notice ``contained the statement that no tax was payable on the income shown in the return''.
[20]
33. In June 1955, the Commissioner issued notices of assessment to the taxpayer. Each notice stated an amount of tax payable in respect of the taxpayer's taxable income in each of the three years. The questions stated for the opinion of the Full Court included whether, prior to the assessments the subject of the June 1955 notices, ``the Commissioner
[
had] made an assessment within the meaning of the Act in respect of the taxpayer'' for any of the three years
[21]
34. In the face of that decision, and in the face of the reasoning that led the Court in Batagol to its conclusion, it was not open to the Federal Court to reach a contrary view, no matter how narrow a view is taken of the doctrine of precedent. It is, therefore, not necessary now to consider any wider question about the operation of that doctrine.
Overseas decisions
35. Some reference was made to decisions on analogous, but not identical, provisions in the taxation legislation of Canada
[23]
36. The Commissioner's appeal to this Court should be allowed. In accordance with what we were told was the agreement between the parties, there should be no order for costs in this Court and the orders for costs below should not be disturbed. Paragraph 1 of the order of the Full Court of the Federal Court of Australia entered on 30 April 1999 should be set aside and in lieu it be ordered as follows:
ATC 4087
- (a) appeal allowed;
- (b) set aside pars 1, 2 and 3 of the order of Spender J entered on 15 September 1997 and in lieu order that the appeal is dismissed.
Footnotes
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