Whitby Land Company Pty Ltd (Trustee) v Deputy Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 54 of 2016)
Judgment date: 30 January 2017
Date published: 14 December 2017

Summary of decision:
Outlines the ATO's response to the case which concerns the validity of assessments issued to a trustee.

Overview of facts:
The applicant was the trustee of a discretionary trust. Because the Commissioner had insufficient information to determine whether beneficiaries were presently entitled to all of the trust income for the 2011 to 2014 income years, the Commissioner issued alternative assessments. In respect of each of those years the trustee was assessed under section 99A and section 98 of the Income Tax Assessment Act 1936 (ITAA 1936). | The trustee challenged the validity of the Commissioner's assessment under section 39 of the Judiciary Act 1903 on the basis that the assessments were 'tentative and provisional' because they imposed two different liabilities on the applicant in its single capacity as trustee of the trust. | Issues decided by the court | The Court ruled that the assessments were valid. | The Court rejected the fundamental premise of the applicant's case which was that the assessments of it were an exercise of power under section 166 of the ITAA 1936. Because the assessment of a trustee does not involve the assessment of taxable income (within the meaning of section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997) section 166 cannot be engaged. Rather the Court characterised sections 98 and 99 of the ITAA 1936 as provisions under which a trustee is made liable to pay tax and found that the power to raise assessments under these provisions stems from section 169 of the ITAA 1936. | Further the Court held that the strictures of 'one income, one taxpayer, one tax' are not engaged by the scheme embodied in Division 6 of the ITAA 1936 in respect of the liabilities of a trustee. | The Court also stated that the making of alternative assessments to address two possible factual scenarios did not make the assessments 'tentative and provisional'. It is the uncertainty with regard to the operation of the trust which the Commissioner hedged by issuing alternative assessments, but the net trust income and amount of income tax payable were clearly specified under each assessment. The 'primary' assessments were based on the assumption that beneficiaries were all presently entitled. The 'alternative' assessments were protective measures in the event that the original view of how the trust operated proved to be incorrect.

Issues decided:
The Court ruled that the assessments were valid. The Court rejected the fundamental premise of the applicant's case which was that the assessments of it were an exercise of power under section 166 of the ITAA 1936. Because the assessment of a trustee does not involve the assessment of taxable income (within the meaning of section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997) section 166 cannot be engaged. Rather the Court characterised sections 98 and 99 of the ITAA 1936 as provisions under which a trustee is made liable to pay tax and found that the power to raise assessments under these provisions stems from section 169 of the ITAA 1936. Further the Court held that the strictures of 'one income, one taxpayer, one tax' are not engaged by the scheme embodied in Division 6 of the ITAA 1936 in respect of the liabilities of a trustee. The Court also stated that the making of alternative assessments to address two possible factual scenarios did not make the assessments 'tentative and provisional'. It is the uncertainty with regard to the operation of the trust which the Commissioner hedged by issuing alternative assessments, but the net trust income and amount of income tax payable were clearly specified under each assessment. The 'primary' assessments were based on the assumption that beneficiaries were all presently entitled. The 'alternative' assessments were protective measures in the event that the original view of how the trust operated proved to be incorrect.

ATO view of decision:
The Court's decision is consistent with the Commissioner's view of the law. The Commissioner will continue to issue assessments under sections 98, 99, and 99A of the ITAA 1936 as appropriate, in accordance with the position in PS LA 2006/7.

Administrative treatment:
None.

Legislative references: Income Tax Assessment Act 1936 6 95AAA 96 - 97 98 - 98B 99 99A 100 102 161AA 166 167 169 170 173 - 175A 177 254 Income Tax Assessment Act 1997 4-1 4-10 4-15 9-1 960-100 995-1 Income Tax Rates Act 1986 12 28 Judiciary Act 1903 39B Taxation Administration Act 1953 The Act
Case references: Cadbury-Fry-Pascall Pty Ltd v Commissioner of Taxation [1944] HCA 31 (1944) 70 CLR 362 Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55 (2012) 250 CLR 503 Commissioner of Taxation v Futuris Corp Ltd [2008] HCA 32 (2008) 237 CLR 146 Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39 Commissioner of Taxation v Stokes [1996] FCA 1128 (1996) 72 FCR 160 Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23 (1995) 183 CLR 168 Federal Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39 (1994) 181 CLR 1 Futuris Corporation Ltd v Commissioner of Taxation [2007] FCAFC 93 (2007) 159 FCR 257 Howey v Commissioner of Taxation [1930] HCA 45 (1930) 44 CLR 289 Lever Bros Pty Ltd v Commissioner of Taxation [1948] HCA 25 (1948) 77 CLR 78 Prestige Motors Pty Ltd v Commissioner of Taxation [1993] FCA 580 (1993) 47 FCR 138 R v Deputy Federal Commissioner of Taxation (SA); ex parte Hooper [1926] HCA 3 (1926) 37 CLR 368 Richardson v Commissioner of Taxation [1932] HCA 67 (1932) 48 CLR 192 Syme v Commissioner of Taxes [1914] AC 1013 Trustees, Executors & Agency Co Ltd v Commissioner of Land Tax [1915] HCA 35 (1915) 20 CLR 21 William Kuhnel & Co Ltd v Deputy Commissioner of Taxation (SA) [1923] ArgusLawRp 104 (1923) 33 CLR 349
Other references: Law Administration Practice Statement 2006/7