Chemical Trustee Ltd v Deputy Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (S82 of 2014 (HCA))
Judgment date: 15 August 2014
Date published: 5 September 2014

Summary of decision:
Outlines the ATO's response to this case which concerns whether the Commissioner, having obtained judgment for an income tax debt, is prohibited from obtaining judgment for an income tax debt arising out of an amended assessment for the same income year.

Overview of facts:
The Commissioner issued notices of assessment to the taxpayer on 12 August 2010 relating to the income years ended 30 June 2001 to 2004, 2006 and 2007. | The Commissioner commenced proceedings in the Federal Court to seek judgment for the income tax debts included in the above notices of assessment. The Commissioner obtained summary judgment in those proceedings on 25 November 2010. | In July and September 2012, the Commissioner issued amended assessments for some of the years of income included in the 2010 judgment, as well as original assessments for some additional years. | The Commissioner commenced proceedings in the Federal Court in September 2012 to seek judgment in relation to the assessments issued in July and September 2012. | The taxpayer argued that the Commissioner was prevented by the doctrine of res judicata, issue estoppel or abuse of process from obtaining judgment in relation to the amended assessments for the years included in the 2010 judgment. The taxpayer relied on Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 (Chamberlain), in which the High Court had held that the Commissioner was prevented from obtaining judgment for a notice of assessment in subsequent proceedings when he already had judgment for the same notice of assessment in earlier proceedings. | At first instance, Perram J rejected the taxpayer's arguments and granted judgment for the Commissioner on 23 May 2013. | The taxpayer appealed to the Full Court of the Federal Court. | The Full Court dismissed the appeal on 19 March 2014. | The taxpayer sought special leave to appeal to the High Court. | The High Court refused the application for special leave on 15 August 2014 on the basis that the Full Court's decision and the primary judge's decision were correct. | Issues Decided by the Court | The Full Court held that the cause of action arising from an amended assessment of income tax is a separate cause of action from that arising from an earlier assessment for the same year of income. Chamberlain was distinguishable because in those proceedings the Commissioner was suing twice for the same notice of assessment and not an amended one. | Consequently, the doctrine of res judicata does not prevent the Commissioner from recovering on an amended assessment if he already has judgment for the original assessment. The fact that an amended assessment gives rise to a separate cause of action also means that issue estoppel does not arise. | The Full Court held that it was not an abuse of process for the Commissioner, following the judgment in 2010, to carry out further investigations into the taxpayer's income tax liability, to issue notices of amended assessment and then to seek to recover the additional tax arising from those assessments as this was in accordance with the statutory scheme for assessment and recovery of income tax. | The Full Court also held that section 177 of the Income Tax Assessment Act 1936 does not provide that a notice of assessment is conclusive proof that the amount is the entire amount of a tax liability and may never be amended. | The High Court in refusing special leave confirmed the correctness of the Full Court's decision and that of the primary judge. Their Honours stated that an amended assessment gives rise to a separate cause of action from an original assessment for the same income year and that this case was not covered by the Chamberlain decision. They also stated that the taxpayer's contention was antithetical to the statutory scheme for amended assessments. Finally, they stated that there was no basis for the application of res judicata, issue estoppel or abuse of process.

Issues decided:
The Full Court held that the cause of action arising from an amended assessment of income tax is a separate cause of action from that arising from an earlier assessment for the same year of income. Chamberlain was distinguishable because in those proceedings the Commissioner was suing twice for the same notice of assessment and not an amended one. Consequently, the doctrine of res judicata does not prevent the Commissioner from recovering on an amended assessment if he already has judgment for the original assessment. The fact that an amended assessment gives rise to a separate cause of action also means that issue estoppel does not arise. The Full Court held that it was not an abuse of process for the Commissioner, following the judgment in 2010, to carry out further investigations into the taxpayer's income tax liability, to issue notices of amended assessment and then to seek to recover the additional tax arising from those assessments as this was in accordance with the statutory scheme for assessment and recovery of income tax. The Full Court also held that section 177 of the Income Tax Assessment Act 1936 does not provide that a notice of assessment is conclusive proof that the amount is the entire amount of a tax liability and may never be amended. The High Court in refusing special leave confirmed the correctness of the Full Court's decision and that of the primary judge. Their Honours stated that an amended assessment gives rise to a separate cause of action from an original assessment for the same income year and that this case was not covered by the Chamberlain decision. They also stated that the taxpayer's contention was antithetical to the statutory scheme for amended assessments. Finally, they stated that there was no basis for the application of res judicata, issue estoppel or abuse of process.

ATO view of decision:
The ATO respectfully agrees with the views expressed by the Federal Court and the High Court. These accord with the way in which the Commissioner currently administers the income tax legislation and seeks to recover debts arising from amended assessments. | In particular, the ATO views the additional tax resulting from an amended assessment as a separate tax liability from the tax arising from any earlier assessment for the same income year. That additional tax may have a different due date from that of the original tax depending on the year of income concerned. | If the Commissioner obtains judgment for an income tax debt and that judgment is not set aside, he will not sue again on the same notice of assessment. However, if the assessment is amended and the amendment gives rise to additional tax, the Commissioner may sue to recover the additional tax. | Your comments | We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date. Date issued: 5 September 2014 Contact officer: Contact officer details have been removed as the comments period has ended.

Administrative treatment:

Legislative references: Income Tax Assessment Act 1936 173 177 204 Income Tax Assessment Act 1997 5-5(2) 5-5(7) Income Tax Act 1986 5(1) Taxation Administration Act 1953 Schedule 1 255-5(1)
Case references: Batagol v Commissioner of Taxation (1963) 109 CLR 243 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 [1988] HCA 21 (1988) 19 ATR 1060 88 ATC 4323 Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 8) [2013] FCA 494 Deputy Commissioner of Taxation v Chemical Trustee Ltd and Others [2010] FCA 1297 (2010) 81 ATR 237 Executor, Trustee and Agency Co of South Australia Ltd v Thompson (1919) 27 CLR 162 Federal Commissioner of Taxation v Hoffnung and Co Ltd (1928) 42 CLR 39 [1928] HCA 49 Frinty v Landmax Developments Pty Ltd [2010] NSWSC 734 Haller v Ayre [2005] QCA 224 Inland Revenue Commissioners v Sneath [1932] 2 KB 362 Jeffery and Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 [2009] HCA 43 O'Driscoll v Manchester Insurance Committee [1915] 3 KB 499 Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 [1981] HCA 45 Society of Medical Officers of Health v Hope [1960] AC 551 Spassked Pty Ltd v Federal Commissioner of Taxation (No 2) (2007) 165 FCR 484 [2007] FCAFC 205 2007 ATC 5406 (2007) 67 ATR 900 Walton v Gardiner (1993) 177 CLR 378 [1993] HCA 77