The Federal Court has found that a company's tax assessments were not tentative and provisional, and therefore were valid. The taxpayer company was the trustee of a discretionary trust (the Whitby Trust). The beneficiaries were the five children of the company's director. One of the children was a minor and thus under a legal disability.

For the 2011 to 2014 income years, the Commissioner of Taxation had notified the taxpayer it was liable to pay tax assessed in two different amounts, calculated by two different methods.

The "primary assessments" for each year were calculated on the basis that the four adult beneficiaries were each presently entitled to equal shares totalling 80% of the net income of the Whitby Trust, relying on s 99A of the Income Tax Assessment Act 1936 (ITAA 1936) and the beneficiary who was a minor was presently entitled to a 20% share of the net income of the trust, but was subject to a legal disability, relying on s 98 ITAA 1936. The primary assessments were issued in April 2014 after the Whitby Trust undertook an audit of transactions.

The "alternative assessments" were made with reference to the same 80% and 20% proportions, but on the basis that none of the beneficiaries were presently entitled to a share of the net income of the trust for each relevant year. The alternative assessments were issued in October 2015. The total tax shortfall over the four income years was just over $23.5 million. The Commissioner also imposed administrative penalties.

When issuing the alternative assessments, the Commissioner explained in a letter to the taxpayer that if the primary assessments were invalid then the alternative assessments were original assessments, but if the primary assessments were valid then the alternative assessments affirmed or amended the primary assessments. The Commissioner asserted in the letter that "on any view, these are valid assessments".

The Commissioner sent further letters to the taxpayer stating that he would apply Law Administration Practice Statement 2006/7, which deals with the collection of tax where there are primary and alternative assessments.

The taxpayer sought relief under s 39B of the Judiciary Act 1903, arguing that the primary and alternative assessments were invalid because they were tentative and provisional. The taxpayer said that the assessments were tentative because, for each year, they imposed two separate and different income tax liabilities on its single trustee capacity. As a result, the taxpayer owed different debts in each relevant year in circumstances where payment of one did not abate the other, and each debt was an independent debt owed to the Commonwealth and payable to the Commissioner (with interest accruing on each debt).

The Commissioner, on the other hand, argued that a trustee's liability to pay income tax is of a "representative character" and the relevant provisions in the ITAA 1936 (ss 98 and 99A) envisage that a trustee might be liable to multiple assessments in respect of different beneficiaries' entitlements to a share of the net income of the trust. The primary and alternative assessments were therefore comparable to assessments for two or more taxpayers in relation to the same income in the same year. Such assessments are not liable to be set aside as tentative or provisional.


Justice Jagot considered the interaction between the ITAA 1936 provisions that deal with the taxation of trusts (in particular ss 98 and 99A) and the ITAA 1936 provisions that concern assessments and amended assessments (in particular ss 166 and 169). In finding for the Commissioner, her Honour advanced various propositions.

  1. Section 166 of ITAA 1936 is concerned with making an assessment on the "taxable income" of any taxpayer. Under ss 4-10(4) and 9-5 item 6 of ITAA 1997, however, the liability of a trustee in that capacity to income tax is not worked out with reference to the trust's net income for the income year, under the process established by ss 98, 99 and 99A of ITAA 1936, or with reference to taxable income. Accordingly, in making the assessments in this case, the Commissioner was not exercising his power under s 166.
  2. Sections 98, 99 and 99A of ITAA 1936 contemplate that a trustee will be assessed and liable to pay tax in respect of the different beneficiaries depending on their status. As a result, a trustee's position in this context is different from the position of an individual or corporate taxpayer who is liable to be assessed and pay income tax on their taxable income for the year.
  3. The assessments specified the amount of tax income assessed and the amount of tax payable on it. Nothing in the evidence otherwise undermined the definite character of the liability imposed. It was merely that one set of assessments assumed a present entitlement of the beneficiaries and the other set assumed no such present entitlement.
  4. The Commissioner had taken a view of the facts and made assessments for each year based on that view (the primary assessments). The alternative assessments were not issued for the purpose of double recovery, but performed a protective function in case the Commissioner's view about the operation of the trust was incorrect.

In conclusion, Jagot J was not persuaded that "the statutory scheme precludes the approach the Commissioner has taken or, of necessity, renders that approach tentative or provisional in the sense that the assessments are no assessments at all".

Whitby Land Company Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2017] FCA 28, 30 January 2017,