RYAN v FC of T

Judges:
Spender J

Court:
Federal Court

Judgment date: 25 July 1997

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Spender J

This application raises the question of what is an ``assessment'' for the purposes of ss 166 and 170 of the Income Tax Assessment Act 1936 (``the ITA Act'').

The application is in the nature of an appeal from a decision of the Administrative Appeals Tribunal (``the AAT'') of 13 May 1996 which affirmed a decision of the Commissioner of Taxation (``the Commissioner'') dated 7 March 1995 not to allow an objection of Gwenda Blanche Ryan (``the applicant'') to the disallowance of a claim for a deduction of

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ATC 4647

$10,000.00 from her assessable income for the 1987 tax year.

The applicant, a pensioner, was at the relevant time a part-time employee and housewife. During the 1987 tax year, the applicant was introduced to a joint venture scheme by a chartered accountant firm. She entered into an Agreement for Sale of Felled Timber (``the Agreement'') with a company named Bonville Beach Hardwoods Ltd (``BBH'') which owned land at Coffs Harbour in New South Wales, as part of a larger joint venture. In conjunction with the Agreement, the applicant entered into a Management Agreement with Hardwood Maintenance Pty Ltd to manage the property.

Under the Agreement, the applicant, together with her husband, purchased 2,000 trees. It provided that property in the trees passed to the purchaser when felled and delivered to a location, which was to be nominated by the purchaser, within 10 kilometres of the place of felling. This could occur at any time within 10 years of the date that the Agreement was entered into or such later date as may be permitted by the purchaser.

One of the clauses of the Agreement provided:

``BBH may in its absolute discretion at any time during the term hereof fell and remove such type and quantity of timber in such location on the Land as BBH in its absolute discretion chooses by giving notice in writing to the Purchaser.''

Another clause of the Agreement stipulated that the applicant bore the risk of loss of the trees purchased for whatever cause and that insurance to cover any such a loss was to be undertaken by the applicant.

In the tax return lodged for the 1987 tax year, the applicant claimed the purchase price of the trees as a tax deduction, being the sum of $10.000.00, pursuant to s 51 of the ITA Act. The applicant characterised the transaction as one incurred in the course of carrying on the business of a timber merchant such that the purchase was not capital in nature and was not therefore assessable income within the meaning of the ITA Act.

The Commissioner issued a document dated 11 December 1987. The correct characterisation of this document is central to the present application. The document was as follows:

``Australian Taxation Office                Your file number
350 Collins Street, Melbourne 3000

Income Tax Assessment Act 1936              Make sure that you show
REFUND NOTICE                               this number on all
for the year ended 30 June 1987             letters and your next
(or substituted accounting period)          income tax return form

        MRS GWENDA B RYAN                   Issue date
                   11 DEC 87
                                            257075/035

Details of your assessment:                 DR = Debit CR = Credit

YOUR TAXABLE INCOME IS NIL                       $      c
TAX ON TAXABLE INCOME                          A      0.00
TOTAL CREDIT FOR TAX STAMPS/F\GROUP
CERTIFICATES                                   E      1451.40CR
CREDIT FOR 1987 PROVISIONAL TAX                F      2202.00CR
AMOUNT REFUNDABLE                              L      3653.40CR

****************AVERAGE DETAILS (NOTE 9)**************************

 YEAR    INCOME
 1983    $ 22113   BASIC TAX AVERAGING AMOUNT          $  941.10
 1984    $ 24252   TAXABLE INCOME FOR PRIMARY
 1985    $ 25978              PRODUCTION               $       0
 1986    $ 24799   OTHER TAXABLE INCOME TO WHICH
 1987    $  4470          AVERAGING APPLIES            $       0
 TOTAL   $101612   COMPLEMENTARY TAX INCLUDED
AVERAGE  $ 20322   ABOVE IN TAX ON TAXABLE INCOME      $    0.00

                           Amount of Refund            $ 3653.40''
      

The words ``REFUND NOTICE'' are typed in capitals on the document. The words ``Details of your assessment'' are printed on the form. It is further to be noted that under the heading ``Average Details (Note 9)'', for the 1987 tax year income is shown as $4470.

The obverse of the document contains explanatory notes. Those notes, in part, are as follows:

``Explanatory notes

These notes help to explain your assessment. They do not necessarily apply to all assessments, and you need only take note of the ones that apply to you.

• 1. Reasons for change. If we have altered amounts shown on your tax return, the changes are shown either on the front of this notice or on a separate sheet. The reason for the change is given, together with a symbol telling you whether the figure has been increased or decreased. Deductions claimed in your return are not shown separately on this notice, but the amount by which any deductions have been adjusted is shown. A decrease in your deductions will appear as an increase in your taxable income.
• 2. Dissatisfied with your assessment. If you are not satisfied that your assessment is correct or you do not understand how it was calculated, please phone or call in to discuss the problem. If you are still not satisfied, you can object to your assessment. Your objection must be in writing and must generally be received in the Tax Office within 60 days from the date of service of this notice. There is more information about disputing your assessment in a free booklet, Income tax and resolving your dispute available from Tax Offices. If you disagree with your assessment, do not send your refund cheque back. If we alter your assessment and you get a further credit, we will send you another cheque for the difference.
• ...
• 9. Averaging of income. Because the income of primary producers tends to fluctuate, they are assessed under a system which averages their incomes over a number of years. From 1 July 1986 an averaging system can also apply to other people such as authors, inventors, artists and professional sporting people whose income may also fluctuate from year to year. More information on averaging is available from Tax Offices.''

Accompanying this document, which, under the heading ``Details of your assessment'', stated expressly that ``Your Taxable Income is NIL'' and ``Tax on Taxable Income $0.00'', was a cheque in the amount of $3653.40.

Some time later an audit into the tax affairs of BBH was conducted and a document headed ``Income Tax Adjustment Sheet'' dated 11 February 1994 was issued.

This was more than six years after the service of the document dated 11 December 1987. The ``notice of assessment'' which accompanied that document stated:

``Your Taxable Income is $14470                    $
Tax on Taxable Income                    A     2435.01DR
Medicare Levy                            O      165.68DR
Additional Tax for Incorrect Return      D     1989.22DR
Balance of this Assessment               L     4589.91DR
This amount is payable by 16 MAR 94                   ''
      

Taxable income of $14470.00 is a reference to the figure $4470.00 referred to in the Income Tax Adjustment Sheet to be the ``income as returned'' for the 1987 year together with the $10,000.00 deduction in respect of trading stock disallowed.

The applicant lodged an objection to the adjustment of her assessable income on 11 April 1994. This objection was rejected by the Commissioner. The Commissioner based his objection on the decision of the House of Lords in
Hood Barrs v Inland Revenue Commissioners [1957] 1 All ER 832, to the

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effect that the purchase of the right to select and fell timber was capital, not revenue expenditure and therefore was not deductible in terms of s 51(1) of the ITA Act.

The applicant contended before the AAT that the outgoing was not of a capital nature and was deductible under s 51(1) of the ITA Act or, alternatively, since the outgoing was used to purchase trading stock, it should not be deemed to be an outgoing of a capital nature and was therefore deductible under s 51(2) of the ITA Act. On this submission, the AAT concluded:

``On the limited evidence available to the Tribunal, it must be regarded as an investment in the nature of a capital investment.''

This finding is not put in issue on this application.

The present application is based on the rejection of the further contention of the applicant to the AAT that the second notice received from the Commissioner (which amended the applicant's assessable income), was not authorised under s 170 of the ITA Act on the basis that the taxpayer had made full and true disclosure and was outside the time limitation periods referred to in that section. On this point, the AAT concluded that ``the provisions of s 170(3) do not stand in the Commissioner's way from issuing the `amended assessment' on 11 February 1994''.

The reference to s 170(3) in the reasons of the AAT indicates that the AAT proceeded on the basis that the taxpayer had made a full and true disclosure of all the material facts necessary for her assessment. The decision by the AAT is that ascertainment by the Commissioner that ``the tax payable is nil'' in the document dated 11 December 1987 is not an assessment of the amount of tax payable on the amount of taxable income of the taxpayer.

The issue raised on this application therefore, is whether the first notice was an ``assessment'' under s 166 of the ITA Act, with the consequence that the time limits under s 170 commence to run from the prescribed period after service of the notice.

Section 204(1) relevantly provides:

``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 sections of the ITA Act relevant to the present application then provided:

``In this Act, unless the contrary intention appears:

6(1) ...

`assessment' means-

• (a) the ascertainment of the amount of taxable income and of the tax payable thereon;...

166 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.

170(2) Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and there has been an avoidance of tax, the Commissioner may-

• (a) where he is of opinion that the avoidance of tax is due to fraud or evasion - at any time; and
• (b) in any other case - within 6 years from the date upon which the tax became due and payable under the assessment,

amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct the assessment.

170(3) 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.''

It was contended for the applicant that the agreement between the parties was that the applicant's taxable income for the relevant year was $4,470.00. It is contended that, given that agreement, there was no evidence to support the finding that the applicant's taxable income for the relevant year was nil. Nor could an inference that the applicant's taxable income for

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the relevant year was nil be drawn from the facts. The submission was that the AAT's reasoning was based upon the erroneous finding that the applicant had a nil taxable income, and that finding vitiated the AAT's decision.

In its reasons, the AAT referred to the judgment of Hill J in
Webb v DFC of T (No 2) 93 ATC 5123 (now also reported in the authorised reports at (1993) 47 FCR 394), and said:

``Hill J pointed out, at 5128, that the definition of the word assessment as determined in Batagol's case was not confined to apply only in the context of s 170. [The reference is to
Batagol v The Commissioner of Taxation of the Commonwealth of Australia (1963) 13 ATD 202; (1963) 109 CLR 243.] His Honour, after determining that a notice is an assessment under s 166 of the Act providing it states the taxable income and the amount of tax which is calculated as levied on that taxable income, went on to say, at 5129:

`... If a credit operates to reduce the tax actually payable by the taxpayer so that either no amount is payable or the taxpayer is entitled to a refund and the notice refers to this on its face, the notice will nevertheless be a notice of assessment.

There are two considerations which make this abundantly clear as a matter of policy. First, were it not so, a taxpayer receiving a notice such as the present would forever be at risk of the Commissioner issuing a fresh assessment in respect of the year in question. The time limits under s 170 would never run. Second, a taxpayer dissatisfied with the computation of the taxable income and the tax relevant to it, would never be in a position to object to the calculation in accordance with the procedures now applicable under Part IVC of the Taxation Administration Act 1953....'

Hill J's comments arise in relation to different factual circumstances than those considered in Batagol's case. As in Batagol's case... the Commissioner determined in 1987 the taxpayer's taxable income as `nil' and that no tax was payable whereas in Webb's case a taxable income was found to exist and an assessment of a liability to pay tax was determined. In the Tribunal's view the decision of the High Court in Batagol's case was decided on facts similar to those in the instant case and is binding on the Tribunal, whereas the decision in Webb's case can, and should, be distinguished on its facts.''

In my view, there is some evidence to support a finding that the applicant's taxable income for the relevant year was nil, namely, the first line of the document of 11 December 1987, under the heading ``Details of your assessment''. I acknowledge that, according to the agreement between the parties, this statement is wrong, and further, the statement is probably inconsistent with the statement later in the document that the income for the 1987 year was $4470.00, (although it should be remembered that ``income'' is not necessarily ``taxable income''). Importantly, the question of whether that document is an assessment for the purposes of s 166 of the ITA Act, does not depend on whether the taxable income was assessed at nil or at $4,470.00.

The Commissioner contended that an assessment had not been made, because the definition of ``assessment'' in s 6(1) of the ITA Act requires there to be an amount of tax payable. The submission continued that, in the context of s 170 of the ITA Act, the condition that there be an amount of tax payable required a ``positive'' amount of tax payable, and since there was no ``positive'' liability to pay tax imposed on the applicant, there was no assessment. Consequently, it was submitted that the original notice was not a notice of assessment and that the subsequent notice is the notice of original assessment, not precluded by the time limitations imposed by s 170 of the ITA Act.

The question therefore is whether there has been an assessment of the amount of tax payable, in the circumstances where the Commissioner has ascertained the amount of tax payable (as either nil or an amount other than nil) but has ascertained that the tax payable is nil.

It seems to me that a determination that a person's taxable income is nil and the tax payable thereon is nil, is no different from a determination that the taxable amount is a certain amount (say $4,470.00) and that the taxable income is nil. It seems to me that if one

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is an assessment within s 6(1) of the ITA Act, so is the other.

In Batagol's case, the High Court, (Kitto, Menzies and Owen JJ) held that an assessment within the meaning of s 170(3) is not made until the Commissioner, having gone through the process of calculation, serves upon the taxpayer a notice that he has assessed the taxable income and the tax payable thereon at specified amounts. Batagol's case concerned two forms of alleged assessment. The first were notations to the effect that no tax was payable, which remained in departmental records not served on or otherwise communicated to the taxpayer. The second was a refund advice which accompanied a cheque. The ``Refund Advice'' stated that no tax was payable. For the purposes of this case, from the incomplete information in the judgments concerning the contents of this document, it is not possible to say whether the document contained an assessment by the Commissioner of the taxable income of the taxpayer.

In that case, the taxpayer asserted that the entire internal procedure for dealing with a taxpayer's return had been completed by the Commissioner. Since nothing further remained to be done under the departmental routine and processes, it was submitted that on each occasion an assessment had been made. Kitto J at ATD 203; CLR 251 said of this argument:

``A difficulty in the way of the appellant's argument appears at once upon a reading of s 170(3) itself, for according to the literal meaning of its terms it assumes that an assessment is something that imposes a liability upon the taxpayer. Indeed it goes on, after making the provision I have mentioned, to say that no such amendment shall be made after the expiration of three years from `the date upon which the tax becomes due or payable under that assessment'; and that certainly assumes that an assessment is something under which tax becomes due and payable. Relying upon these and other indications of intention in the Act the Commissioner maintains that the word `assessment' is used throughout s 170 in a sense which makes a `nil' assessment an impossibility.''

Bearing in mind the significance of this passage for later cases, it should be remarked that Kitto J does not himself say that a ``nil'' assessment is an impossibility under s 170, but refers to the submission by the Commissioner to this effect. Kitto J continued [ATD 204]:

``The word `assessment' is defined in s 6 to mean, unless the contrary intention appears, the ascertainment of the amount of taxable income and of the tax payable thereon. There is nothing in s 170 to show the contrary intention. But the definition is not sufficient by itself to answer the question before us, because `ascertainment' is a word the force of which depends upon the context. It is here used in an Act under which the service of a notice of assessment is the levying of the tax. Assessment in the sense of mere calculation produces no legal effect. No step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance. But if the Commissioner, having gone through the process of calculation, serves on the taxpayer a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified in the notice or (if no date is specified) on the thirtieth day after the service of the notice: s 204. Thus, and thus only, there is brought about an `ascertainment' of the taxable income and of the tax, in the sense that thereafter it is possible to say what could not have been said before: that amounts have been fixed so that they are to be taken for all purposes (except those of appeal: see s 177) to be the result flowing from the application of the Act in the particular case. The respective amounts of the taxable income and the tax have been rendered certain.''

His Honour continued at ATD 204; CLR 252:

``... The word `ascertainment' being understood in this sense, the definition of `assessment' means, in my opinion, the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case. The idea coincides with that which Isaacs J expressed in
Federal Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39, at p 55; 1 ATD 310 at p 319 in relation to war-time profits tax when he

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said: `If an assessment definitive in character is made, it assumes that, so far as can there be seen, a fixed and certain sum is definitely due, neither more nor less. In short, it ascertains a precise indebtedness of the taxpayer to the Crown'.''

His Honour later remarked [ATD 204]:

``... it is clear that assessment is a process which by force of the Act is definitive of the amount of the taxpayer's liability, though subject of course to review and appeal.''

And later [ATD 204]:

``... the essential character of an assessment [ is] the creation of a tax liability of specific amount.''

At ATD 205; CLR 253 his Honour concluded:

``... `assessment' meant the whole process which comes to a head in the service of a notice of assessment and thereby becomes, as a whole, an act in the law.''

Owen J in the same case said at ATD 206; CLR 255:

``... an examination of the relevant sub- sections of s 170 seems to me to show that they are concerned only with cases in which the calculation of the amount of taxable income and the amount of tax payable thereon has been completed and, at least, the notice required by s 174 has been given.''

His Honour continued at ATD 207; CLR 256:

``... In the case of the year ending 30th June 1954, the `refund advice' sent to the appellant contained a statement that no tax was payable in respect of that year. But this was not a notice of assessment: it was merely to explain why it was that the whole of the tax deductions made during the year was being refunded. Here again I think the taxpayer's objection fails since, for the reasons stated above, what occurred did not create any liability to pay tax.''

In
DFC of T v Sheehan 86 ATC 4718, the Commissioner issued an adjustment sheet, together with a document of the kind used for a notice of assessment but headed ``Notice of Credit Applied''. Tadgell J said of this notice at 4724:

``... although there is a minor clerical error in the notice, it is clear enough that it purports to say that for the 1979 year the defendant's taxable income was nil and that no tax was assessed or payable for the 1979 year. The notice also served to advise the defendant that provisional tax for the 1979 year, assessed in the 1978 year, was credited against the current outstanding debit brought forward from the 1978 assessment, which was wholly unpaid. In the result, the notice of credit applied, as it is described, informed the defendant that the amount assessed for the 1978 year, less provisional tax credited, remained to be paid.''

It was argued for the taxpayer in that case that the ``Notice of Credit Applied'' document was a notice of assessment because, while it did not purport to assess a liability for tax for the 1979 year, it purported to assess a taxable income when read with the adjustment sheet sent with it. Therefore, it satisfied the definition of ``assessment'' in s 6 of the Act, viz. ``the ascertainment of the amount of taxable income and the tax payable thereon.'' It was argued that tax was assessed, albeit at nil. Tadgell J said at 4724:

``I think I must hold the argument to be without foundation. It is sufficient to say that, in my opinion, it is foreclosed by the decision of Batagol v F C of T, some of the salient features of which I have already mentioned. The imposition of a liability is a necessary feature of an assessment under Pt IV of the Act, and a nil assessment is an impossibility: see the judgment of Kitto J at p 251 of the report.''

His Honour further noted [ATC 4724]:

``... A notice of assessment is not to be confused with a mere statement of account. In my opinion the document which was called Notice of Credit Applied did not meet the criteria of an assessment and was more in the nature of a statement of account (or a bill) sent by the plaintiff to the defendant for information.''

In
Stuart (No 2) v FC of T 96 ATC 4942, Northrop J, at 4945, dismissed the taxpayer's appeal on the following basis:

``The law on this issue is clear. A nil assessment is an impossibility. This is discussed by Kitto J in
Batagol v FC of T (1963) 13 ATD 202; (1963) 109 CLR 243 with whose reasons Menzies J agreed.''

His Honour referred to the judgment of Tadgell J in DFC of T v Sheehan (supra). The other members of the Full Court (Lee and Finn JJ) dismissed the appeal on a different basis,

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namely, that the proceeding commenced in the Federal Court in respect of an ``appealable objection decision'' was incompetent, because the taxpayer had ``made no taxation objection'' as defined in s 14ZL of the Taxation Administration Act 1953.

In
Webb v DFC of T (No 2) 93 ATC 5123 at 5129; (1993) 47 FCR 394, Hill J said at 400:

``In my view, at least in the case where the assessment is made under s 166 of the Act, a notice will be a notice of assessment provided it states the taxable income as determined by the Commissioner and the amount of tax which is calculated as levied upon that taxable income.''

The policy considerations supporting his Honour's conclusion have been earlier set out. His Honour continued [ATC 5129]:

``... It is no answer, in my opinion, to say that by the use of administrative law remedies or other civil procedures a taxpayer might be able to have his taxation liability for the year determined outside of the ordinary objection and appeal procedures and in circumstances where the provisions of s 177 would presumably have no application.

Each of these undesirable consequences, however, disappear once it is realised that the giving to the taxpayer of a notice which stipulates the taxable income and the tax payable referable to that taxable income in the year (a positive figure) will be a notice of assessment attracting the provisions of the objection and appeals procedure and s 177.''

This leaves open the position where there is a notice which stipulates the taxable income and also stipulates that the tax payable referable to that taxable income is nil.

In
FJ Bloemen Pty Ltd v FC of T; Simons v FC of T 81 ATC 4280; (1980-1981) 147 CLR 360, Mason and Wilson JJ said at ATC 4289; CLR 378:

``... In a given case a question may arise as to whether the notice produced by the Commissioner is a notice of assessment, eg, a notice expressed to relate to a definitive assessment as distinct from a provisional or tentative assessment. Unless it can be characterized as a notice of an `assessment', sec 177(1) will have no operation.''

In
FC of T v Stokes 97 ATC 4001, the Full Court of the Federal Court (Spender, Burchett & Hill JJ) said at 4006:

``Once an assessment has been made, the Commissioner is required under s 174(1) of the Act to serve notice of it upon the person liable to pay the tax. It is service of that notice which imposes upon the taxpayer for the first time a liability to pay the tax assessed; s 204 and see
Clyne v DFC of T & Anor 81 ATC 4429 at 4437; (1981) 150 CLR 1 at 16-17 per Mason J, with whom Aickin and Wilson JJ agreed. It is the service of that notice of assessment also which enlivens the right of the taxpayer, if dissatisfied with the assessment, to object and appeal, matters now dealt with in the Taxation Administration Act 1953 Part IVC.

The notice of assessment thus brings to an end what is referred to as the process of assessment:

`... by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case.'

See
Batagol v FC of T (1963) 13 ATD 202 at 204; (1963) 109 CLR 243 at 252 per Kitto J.''

It is not stated in any of the judgments in Batagol (supra) that a determination that no tax is payable precludes the document from amounting to an assessment. Throughout his judgment in Batagol, Kitto J referred to the ascertainment of the taxable income and of the tax payable thereon as being a procedure which produced an amount that is ``fixed'', a ``specified amount of money'', a ``fixed and certain sum'', the ``precise indebtedness of the taxpayer'' - something ``definitive of the amount of the taxpayer's liability''. His Honour went on to define the ``essential character of an assessment as the creation of a tax liability of specific amount'' and held that ``without the notice of assessment fixing a taxable income and a tax there is no assessment''. Finally, he stated that ``throughout the section an assessment is referred to as a specific, identifiable thing which... will stand as decisive of liability''.

Owen J in Batagol said that before s 170 of the ITA Act was enlivened, three matters had to

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be satisfied: the amount of taxable income had to be calculated, the amount of tax payable thereon had to be calculated, and the notice required by s 174 had to be given. In the view I take of his Honour's judgment, his Honour concluded that the ``refund notice'' did not satisfy these criteria because, although it contained a statement that no tax was payable, that statement was merely to explain the reason for the refund of the whole of the tax deductions made during the relevant tax year. The statement was not and did not purport to represent an ``assessment'' of a taxable income or of the tax payable thereon. In my opinion, Owen J did not say that an amount of money must be owing to the Commissioner before an ``assessment'' is made. His Honour said simply that all the steps in the process necessary to create a liability to pay tax must have been completed before an assessment is made.

The document in the present case must be contrasted with the document in Batagol and the documents in Sheehan. The document specifies ``Details of your assessment''. It states ``Your taxable income is nil'' and ``Tax on taxable income $0.00'', and that document was served on the taxpayer. This document, in my judgment, contains a ``fixed'', ``specified'', ``certain'', ``precise'' and ``definitive statement'' of the applicant's taxable income and of the tax payable thereon. The statements in the document of 11 December 1987 were not mere explanations, they were amounts ascertained by the Commissioner and notified to the applicant. They were, in truth, details of her assessment. In my opinion, both the taxable income and the tax payable thereon were ascertained by the Commissioner. That the document was, and was intended to be, the assessment by the Commissioner in discharge of his duty under s 166 of the ITA Act to make an assessment, is strongly corroborated by the explanatory notes on the obverse of the document.

In my opinion, to 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 ITA 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 VNR Concise Encyclopedia of Mathematics edited by W Gellert, H Kustner, M Hellwich, H Kastner (published by the Van Nostrand Reinhold Company, First American Edition 1977), the learned authors say at p 20:

``Order of the natural numbers N. Every natural number has exactly one immediate successor; for example 96 is the successor of 95. This means that the sequence of natural numbers has no last number; it never breaks off. The number 0 is not a successor; every natural number other than 0 has exactly one immediate predecessor; this means that the sequence of natural numbers has a beginning in its first member 0.''

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.

There are sound reasons of policy, (similar to those expressed by Hill J in Webb's case), why this should be so. Otherwise a taxpayer would never be in a position to object to a calculation of the tax payable as zero, in accordance with the procedures now applicable under Part IVC of the Taxation Administration Act 1953 (Cth). One can imagine circumstances where the taxable income as ascertained is below the threshold amount, with the consequence that the tax payable thereon is zero, where the taxpayer disputes the amount of the taxable income so ascertained. A simple example will suffice. If a taxpayer had an assessable income of $30,000.00, claimed $35,000.00 deductions, and was disallowed $10,000.00 of those deductions, with the consequence that the taxable income as ascertained by the Commissioner is below the threshold at which tax is payable, can it be the taxpayer cannot object against the disallowance because no tax is payable? There can also be circumstances which involve averaging or the carrying forward of losses. There is no reason in policy or in logic or in mathematics why the ascertainment of the tax payable as zero is not an assessment of the amount of tax payable.

Counsel for the Commissioner conceded that if the tax payable were ascertained at $1.00, that would be sufficient to constitute an assessment,

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but it was contended that if the amount payable was zero, that would not be an assessment.

The Commissioner is under a duty to make an assessment: see s 166. In appropriate circumstances, mandamus might issue. If the Commissioner's argument is correct, (namely, that where the ascertainment by the Commissioner of the tax payable is zero, the Commissioner has not made an assessment), the Commissioner has failed to perform his statutory duty. It is absurd to suggest that the Commissioner could be compelled to perform an impossibility.

It is not the intention of s 166 of the ITA Act, nor its effect, to preclude the Commissioner from properly determining that in all the relevant circumstances, no tax is payable by the taxpayer.

In my opinion, Batagol's case does not require the acceptance of the submission made on behalf of the Commissioner; the views of Tadgell J in Sheehan and Northrop J in Stuart (No 2) proceed, in my respectful opinion, on a misunderstanding of the decision in Batagol's case.

In my opinion, the document served on the taxpayer in accordance with s 174 of the ITA Act, being the document dated 11 December 1987, is a notice of assessment.

The above is sufficient to dispose of the appeal. However, there is some assistance to be derived from decisions under different statutory provisions.

In
Precision Pools v FC of T; Qld Pool & Spa Const Pty Ltd v FC of T & Anor 92 ATC 4549; (1992) 37 FCR 554, I was concerned with s 26 of the Sales Tax Assessment Act (No 1)(1930) Cth, which relevantly provided:

``Subject to sub-section 1(A), where the Commissioner finds any case that tax has been overpaid by a person, the Commissioner shall-

• (a) refund the amount of any tax overpaid.''

In that case it was submitted on behalf of the Commissioner that s 26 applied only where there was a liability to pay some tax, but that an amount in excess of the amount required to be paid had already been paid. Thus it was submitted that, where no tax at all was payable, s 26 had no application.

I rejected that submission, holding that if nothing at all was due, then the entirety of what was paid was an overpayment. I was of the view, and still am, that ``overpayment'' is not confined to a situation where some tax is payable but more than that sum has been paid; it can encompass the situation where no tax is payable, with the consequence that the entirety of that which has been paid is an overpayment.

In that judgment I referred at 563 to the observations of Latham CJ in
MR Hornibrook Pty Ltd v FC of T (1939) 5 ATD 167; (1939) 62 CLR 272. That case concerned the question of whether sales tax was payable under the Sales Tax Assessment Act (No 1) 1930-36 in respect of the sale value of reinforced concrete piles used in the construction of the Hornibook Highway. Amongst other things, it was argued for the appellant that the piles had no sale value within the meaning of that Act and that the piles were not a ``manufacture'' or ``goods manufactured'' within the meaning of that Act.

It was objected by the Commissioner that the Board of Review had no jurisdiction to determine the objections raised, because the objections were not merely objections to the amount or value upon which the Commissioner had assessed sales tax, but were objections that sales tax was not payable at all. Of this objection, Latham CJ said at ATD 171; CLR 280:

``... This objection depended upon the words of s 41(1). That provision enables a taxpayer to object to any assessment or decision made by the Commissioner by which the sale value of any goods is ascertained by lodging an objection in writing against the `amount or value' upon which he is required to pay sales tax.... The contention of the Commissioner is that only objections to `amount or value' can be dealt with under these provisions, and that an objection that no tax at all is payable must be dealt with, if at all, in a proceeding for the recovery of the tax. In my opinion this objection is not well founded. A contention that the Commissioner is seeking to tax a transaction which does not involve any dealing in `goods' within the meaning of the Act, or that the alleged goods have no sale value within the meaning of the Act, is a ground for an objection to the amount or value upon which the commissioner requires the taxpayer to pay sales tax. The objection of the taxpayer is that there is no amount or value upon which he is bound to pay tax,

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ATC 4656

that is, that the alleged amount or value should, for the reasons relied upon by him, be reduced to nil.''

While Precision Pools (supra) and MR Hornibrook (supra) are each concerned with different statutory provisions, they support, in my view, the conclusion that the ``ascertainment of the taxable income and of the tax payable thereon'' in s 6(1) of the ITA Act includes an ascertainment that the amount of taxable income is nil and that the amount of the tax payable thereon is nil.

Reference can also be made to another quite different statutory context under the Child Support (Assessment) Act 1989 Cth dealing with the question of ``nil assessments'' under that Act: see
Dwyer v McGuire (1993) FLC ¶ 92-420; (1993) 114 FLR 325 per Lindenmayer J at FLC 80,316;-80,317; FLR 336-337;
Bolton and Bolton (1992) FLC ¶92-309 at 79,322; (1992) 107 FLR 131 at 137 per Cohen J; and
Borg and Borg (1991) FLC ¶92-215; (1990) 14 Fam LR 706, where Kay J said at FLC 78,450; Fam LR 708:

``The order that I am irresistibly drawn to, given that the relatively small amount of capital that the husband will have as a result of the property orders I will in due course make, is that his liability to provide child support should be assessed at nil until such time as he is able to re-enter the workforce.''

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The Court declares that the document ``Exhibit 1'' is a notice of assessment within s 166 of the Income Tax Assessment Act (1936) Cth.

3. That the objection decision dated 7 March 1995 be set aside and in lieu thereof it be ordered that the claim for a deduction of $10,000.00 from the applicant's assessable income for the 1987 tax year be allowed.

4. The respondent pay the applicant's costs of the appeal, to be taxed if not agreed.