Barkworth Olives Management Limited v Deputy Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Supreme Court (6430 of 2009)
Judgment date: 9 April 2010
Date published: 31 August 2011

Summary of decision:
Outlines the ATO's response to this case which concerned whether paragraph 254(1)(e) of the Income Tax Assessment Act 1936 (ITAA 1936) limits the personal liability of a trustee who has been conclusively assessed on the trust's net income, to trust amounts received by that trustee.

Overview of facts:
The Deputy Commissioner obtained summary judgment in the Supreme Court of Queensland against Barkworth Olives Management Limited (Barkworth Olives) for approximately $81.5m. This amount comprised income tax owing pursuant to assessments issued to Barkworth Olives under section 99A of the ITAA 1936 (in its capacity as trustee of a number of trusts), administrative penalty and general interest charge. | The primary judge rejected Barkworth Olives' argument that paragraph 254(1)(e) of the ITAA 1936 qualified what would otherwise be the conclusive nature of the assessments under section 170 of the ITAA 1936, noting that the contended effect of paragraph 254(1)(e) was an issue that could be raised in separate objection proceedings. | Barkworth Olives appealed the decision on the basis that paragraph 254(1)(e) of the ITAA 1936 meant it was not personally liable for the amounts specified in the notices of assessment because it had not received any of the money that comprised the income that was the subject of the section 99A assessments. | Section 254 relevantly provides: (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply: ......... (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. ......... (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against the attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. | (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply: ......... (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. ......... (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against the attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. | (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. ......... (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against the attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. | The Deputy Commissioner argued that paragraph 254(1)(e) cannot modify the amount of the debt otherwise fixed as due and payable. | Neither party adopted the view, apparently relied upon by the primary judge, that subparagraph 254(1)(e) forms part of the process of assessment under section 99A. | Issues decided by the court of Appeal | The Deputy Commissioner was entitled to summary judgment. | The Court found that the Applicant's contention that a trustee's liability to pay tax was limited by paragraph 254(1)(e) produced a substantial conflict with those provisions in Division 6, such as section 99A, which in specified circumstances rendered a trustee liable to pay tax, the amount of which was (except in objection proceedings) conclusively set out in the notice of assessment and was due and payable at a certain date (see sections 169, 175, subsection 177(1) and section 204 (now section 5-5 of the Income Tax Assessment Act 1997 ) of the ITAA 1936). | The Court held that this conflict was to be resolved by paragraph 254(1)(e) giving way to those specific provisions in Division 6 which impose liability to tax upon a trustee (as an exception to the general rule that the beneficiaries are liable). Whilst paragraph 254(1)(e) may qualify a personal liability of the trustee created by section 254, it does not qualify a trustee's personal liability created by other provisions (mentioned above) where the trustee is expressed to be liable to tax under a provision of Division 6. | In support of this approach, the Court cited Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998 ) 194 CLR 355 at 382. See paragraphs [28], [30] and [41]. | The Court also noted (at paragraph [42]) that this construction seems consistent with the extrinsic evidence concerning the Bill for the ITAA 1936. Fraser JA observed that the report of the Royal Commission which led to the enactment of that Act suggests that the original predecessor of paragraph 254(1)(e)) was intended to apply where it was the beneficiary, rather than the trustee, who was assessed to tax under the provision upon which Division 6 of Part III was based (the Royal Commission reporting that the trustee should be under no liability in respect of such assessment except in a representative capacity under provisions dealing with the collection of tax). | In reaching its decision the Court agreed the parties were correct to assert that subparagraph 254(1)(e) forms no part of the process of assessment whereby the tax payable by a trustee under Division 6 is ascertained (at paragraph [19]) and in respect of which the appellant has rights of objection and appeal (at paragraphs [26] and [43]). | The Court did not address the application of section 254 in situations where there had been a change in trustee (see paragraph [30]). | The High Court refused Barkworth Olives' application for special leave to appeal against the Decision of the Court of Appeal (see [2010] HCATrans 299). In refusing the application Hayne J observed that the Court of Appeal was right to hold that the provisions of section 254 did not qualify the operation of sections 177 or 204 in any way relevant to the matter before them.

Issues decided:
The Deputy Commissioner was entitled to summary judgment. The Court found that the Applicant's contention that a trustee's liability to pay tax was limited by paragraph 254(1)(e) produced a substantial conflict with those provisions in Division 6, such as section 99A, which in specified circumstances rendered a trustee liable to pay tax, the amount of which was (except in objection proceedings) conclusively set out in the notice of assessment and was due and payable at a certain date (see sections 169, 175, subsection 177(1) and section 204 (now section 5-5 of the Income Tax Assessment Act 1997 ) of the ITAA 1936). The Court held that this conflict was to be resolved by paragraph 254(1)(e) giving way to those specific provisions in Division 6 which impose liability to tax upon a trustee (as an exception to the general rule that the beneficiaries are liable). Whilst paragraph 254(1)(e) may qualify a personal liability of the trustee created by section 254, it does not qualify a trustee's personal liability created by other provisions (mentioned above) where the trustee is expressed to be liable to tax under a provision of Division 6. In support of this approach, the Court cited Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998 ) 194 CLR 355 at 382. See paragraphs [28], [30] and [41]. The Court also noted (at paragraph [42]) that this construction seems consistent with the extrinsic evidence concerning the Bill for the ITAA 1936. Fraser JA observed that the report of the Royal Commission which led to the enactment of that Act suggests that the original predecessor of paragraph 254(1)(e)) was intended to apply where it was the beneficiary, rather than the trustee, who was assessed to tax under the provision upon which Division 6 of Part III was based (the Royal Commission reporting that the trustee should be under no liability in respect of such assessment except in a representative capacity under provisions dealing with the collection of tax). In reaching its decision the Court agreed the parties were correct to assert that subparagraph 254(1)(e) forms no part of the process of assessment whereby the tax payable by a trustee under Division 6 is ascertained (at paragraph [19]) and in respect of which the appellant has rights of objection and appeal (at paragraphs [26] and [43]). The Court did not address the application of section 254 in situations where there had been a change in trustee (see paragraph [30]). The High Court refused Barkworth Olives' application for special leave to appeal against the Decision of the Court of Appeal (see [2010] HCATrans 299). In refusing the application Hayne J observed that the Court of Appeal was right to hold that the provisions of section 254 did not qualify the operation of sections 177 or 204 in any way relevant to the matter before them.

ATO view of decision:
Section 254 of the ITAA 1936 does not limit the personal liability of a trustee assessed to tax pursuant to sections 99A or 99; nor does it qualify the operation of section 177 or 5-5 of the ITAA 1997 in respect of such a liability.

Administrative treatment:
The Commissioner will not accept that section 254 of the ITAA 1936 limits the personal liability of a trustee where that trustee is expressed to be liable to tax under a provision of Division 6.

Legislative references: Income Tax Assessment Act 1936 99 99A 175 177 204 254
Case references: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 [2008] HCA 41 2008 ATC 20-045 69 ATR 357 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 [1995] HCA 23 95 ATC 4067 29 ATR 644 Deputy Federal Commissioner of Taxation of the Commonwealth of Australia v Futuris Corporation Ltd (2008) 237 CLR 146 [2008] HCA 32 2008 ATC 20-039 69 ATR 41 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 [1994] HCA 39 94 ATC 4570 28 ATR 336 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 [1981] HCA 27 81 ATC 4280 11 ATR 914 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28
Subject references: Assessment - validity Collection Debt Liability Net income Personal liability Tax payable Trustee