Commissioner of Taxation v Australian Building Systems Pty Ltd ((in Liquidation))

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: French CJ,Kiefel J.,Gageler J.,Keane J.,Gordon J.
• Judgment Date: 10 December 2015
• Neutral Citation: [2015] HCA 48
• Docket Number: S119/2015 & S132/2015
• Date: 10 December 2015

[2015] HCA 48

HIGH COURT OF AUSTRALIA

French CJ, Kiefel, Gageler, Keane And Gordon JJ

S119/2015 & S132/2015

Commissioner of Taxation

Appellant

and

Australian Building Systems Pty Ltd (In Liquidation)

Respondent

Commissioner of Taxation

Appellant

and

Ginette Dawn Muller And Joanne Emily Dunn As Liquidators of Australian Building Systems Pty Ltd (In Liquidation)

Respondents

Representation

J T Gleeson SC, Solicitor-General of the Commonwealth with N J Williams SC and M J O'Meara for the appellant in both matters (instructed by McInnes Wilson Lawyers)

S L Doyle QC with M S Trim for the respondents in both matters (instructed by Thomson Geer)

Income Tax Assessment Act 1936 (Cth), ss 6(1), 254, 255, Pt III, Div 6.

Income Tax Assessment Act 1997 (Cth), ss 5–5, 104–10.

Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation)

Commissioner of Taxation v Muller and Dunn as Liquidators of Australian Building Systems Pty Ltd (In Liquidation)

Taxes and duties — Income tax and related legislation — Obligations of agents and trustees — Where liquidators caused company to sell property resulting in a capital gain — Whether retention obligation in s 254(1)(d) of Income Tax Assessment Act 1936 (Cth) arises before assessment — Whether liquidators are trustees of trust estate for the purposes of Div 6 of Pt III of Act.

Statutes — Construction — Same or similar phrases within a statute — Whether construction of a phrase in one provision controls construction of the same or similar phrase in another provision — Relevance of context and purpose.

Words and phrases — ‘agent’, ‘answerable as taxpayer’, ‘assessment’, ‘capital gain’, ‘collecting provision’, ‘due’, ‘due and payable’, ‘income, profits or gains’, ‘is or will become due’, ‘owing’, ‘sufficient’, ‘trustee’.

ORDER

Each appeal is dismissed with costs.

French CJ And Kiefel J.

Introduction

1 Section 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (‘the 1936 Act’) requires every agent and every trustee ‘to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.’ The question on these appeals is whether that retention obligation arises before the making of an assessment or deemed assessment in respect of the income, profits or gains. That question should be answered in the negative and the appeals dismissed.

Factual background

2 On 6 April 2011, the creditors of Australian Building Systems Pty Ltd (‘ABS’) resolved that it be wound up under s 439C of the Corporations Act 2001 (Cth) (‘the Corporations Act’). Ms Ginette Muller and Ms Joanne Dunn, who had been appointed as administrators of the company on 2 March 2011, were appointed its liquidators.

3 On 21 July 2011, the liquidators caused ABS to enter into a contract for sale of real property which gave rise to a capital gain designated as a CGT event A1 under s 104–10 of the Income Tax Assessment Act 1997 (Cth) (‘the 1997 Act’). The capital proceeds were $4,000,000. The cost base for the property under Div 110 of the 1997 Act was about $2,880,000. The capital gain for the purposes of s 104–10(4) of the 1997 Act was approximately $1,120,000.

4 The liquidators applied for a private ruling from the Commissioner of Taxation (‘the Commissioner’) in January 2012 pursuant to Div 359 of Sched 1 to the Taxation Administration Act 1953 (Cth) (‘the Administration Act’). In their application they asked whether they had an obligation, pursuant to s 254 of the 1936 Act, to retain out of the proceeds of sale monies sufficient to cover any capital gains tax liability from the time that the capital gain crystallised or only when an assessment had issued. They also sought a ruling on whether they were required to account to the Commissioner out of the proceeds of sale for any capital gains tax liability arising from the sale. The Commissioner ruled, in May 2012, that under s 254 they were required to retain monies for any capital gains tax liability out of the proceeds of sale of an asset from the time of the crystallisation of the capital gain and that they were required to account to the Commissioner for that liability out of the proceeds of sale.

5 The liquidators objected to the ruling. Their objection was disallowed and on 5 October 2012 ABS appealed against the Commissioner's decision in the original jurisdiction of the Federal Court pursuant to s 14ZZ of the Administration Act. The liquidators also commenced proceedings in the Federal Court on 11 October 2012 seeking declaratory relief effectively in terms of the private ruling for which they had applied 1. The proceedings were heard concurrently by Logan J, who held that s 254 did not impose any obligation on the liquidators to retain money from the proceeds of sale of ABS's land unless and until an assessment had issued 2.

6 On 8 October 2014, the Full Court of the Federal Court dismissed the Commissioner's appeals 3. Edmonds J, with whom Collier J agreed, held that, prior to the issue of an assessment to the liquidators, there could be no tax which ‘is … due’ by the liquidators in the sense of ‘owing’. Nor, prior to that time, could it be said that tax ‘will become due’ in the sense of owing 4. That conclusion was linked to the proposition, not supported by the respondents to these appeals, that ABS was ‘presently entitled’ within the meaning of Div 6 of Pt III of the 1936 Act, thus equating the liquidators to the position of trustees for the purposes of that Division 5. Davies J did not adopt that reasoning. Her Honour held that the liquidators would be assessed in their representative capacity and that the obligation in s 254(1)(d) is to be read as referring to an amount of tax that has been assessed 6.

7 The application by Edmonds J of Div 6 of Pt III of the 1936 Act was not consonant with what was said in Federal Commissioner of Taxation v Bamford7, namely that a liquidator, although included in the definition of ‘trustee’ in s 6(1)

of the 1936 Act, ‘is not a trustee of a trust estate in any ordinary sense’ 8. The Full Court's reasoning with respect to Div 6 of Pt III was erroneous. The Commissioner's submission in that respect was not contested and should be accepted. The question upon which the parties joined issue in these appeals was whether the retention obligation could arise prior to the making of an assessment (or deemed assessment) in respect of the relevant income, profits or gains.

8 The Commissioner's appeals to this Court are made pursuant to the grant of special leave by Kiefel and Keane JJ 9.

The legislative history and framework

9 Section 254 and its companion provision s 255, which imposes retention and payment obligations on persons in receipt or control of money from non-residents, have their roots deep in the history of taxation legislation.

10 The history begins in the United Kingdom. Section 91 of the Income Tax Act 1799 10 applied to trustees or company officers (among other classes of person) who received income chargeable by virtue of the Act, and provided that where such persons:

‘shall be assessed by virtue of this Act, to contribute any Sum or Sums in respect of such Income, then and in every such Case it shall be lawful for every such Person who shall be so assessed, by and out of such Annual Income as shall come to his or her Hands or Hand as such Trustee … or other Officer, to retain so much and such Part of such Annual Income as shall from Time to Time be sufficient to pay such Assessment’.

That provision created an authority, not in terms an obligation, to retain funds to pay an assessment. The authority was conditioned upon the event of an assessment. Similar provision was made in income tax legislation in the United Kingdom in the 19th century 11. Australian colonial and early State taxing

statutes were influenced by the United Kingdom statutes and contained retention provisions variously worded 12.

11 Section 12 of the Income Tax Act 1895 (Vic) (‘the 1895 Victorian Act’) made every agent for any taxpayer permanently or temporarily out of Victoria and every trustee ‘answerable’ for the doing of all acts, matters or things required to be done by the Act in order to ensure the assessment of the income belonging to the person or company represented by the agent or which is the subject of the trust or received by the agent or trustee and for paying tax in respect of it 13. Such agents and trustees were authorised and required to retain from time to time in each year out of any money coming to them as agent or trustee 14:

‘so much as is sufficient to pay the tax for the current year in respect of any income subject to the tax’.

They were indemnified for all payments made under the Act 15. They were also made personally liable for the tax payable in respect of any income if, while such tax remained unpaid, they disposed of the income or any fund or money received after the tax was payable from which the tax could legally have been paid 16. The term ‘trustee’ was given an extended definition and included officers having the administration or control of any income affected by any express or implied trust 17.

12 Section 12 of the 1895 Victorian Act was considered in Webb v Syme18. Griffith CJ described the liability of the trustee as secondary and contingent upon the beneficiary failing to pay the tax for which he was liable. The provisions of the Act requiring trustees to make returns of income were ancillary, in the nature of machinery for ensuring payment by the beneficiary 19. Barton and O'Connor JJ described s 12 in similar terms 20. Barton J characterised the personal liability imposed by the section as ‘a penalty for not keeping a reserve of income or funds in hand to satisfy the tax, until it is seen whether...