Set aside the orders of the Full Court of the Federal Court except in relation to costs and in lieu thereof order that the appeal to that Court be dismissed.

The appellant to pay the respondent's costs of the appeal to this Court.

MASON CJ, BRENNAN, DEANE, GAUDRON AND McHUGH JJ This appeal by

the Commissioner against a decision of the Federal Court (Hill J,

with whom von Doussa and Beazley JJ agreed) allowing an appeal by the

respondent from a decision of Gummow J raises an important question

concerning the validity of a notice of assessment of income tax

2. The Commissioner commenced an action in this Court, which was

remitted to the Federal Court, seeking a declaration that certain

notices were notices of assessment served by the Commissioner upon the

respondent and a further declaration that income tax as so assessed

was due and payable by the respondent to the Commissioner on the

thirtieth day after service of these notices. The circumstances

giving rise to the proceedings, which were admitted in pleadings and

agreed by the parties, may be stated briefly. The summary which

3. At all material times, the respondent was the trustee of a trust

estate known as the "Prestige Toyota Trust". In that capacity, it

caused to be lodged with the Commissioner returns of income derived

by it as trustee and the deductions claimed by it. Officers of the

Australian Taxation Office made calculations resulting in the

computation of tax payable in respect of the years of income ended

30 June 1979 to 30 June 1990 inclusive. On or about 19 June 1991

notices headed "Notice of Assessment" which incorporated these

"Prestige Toyota Trust

C/- Price Waterhouse

13th Floor

200 St Georges Terrace

PERTH WA 6000",

that being the address for service within the meaning of reg.38 of the

Income Tax Regulations and the address for service of notices shown

in the returns which had been lodged. Most of the notices were dated

19 June 1991. Each notice bore a file number, which was

the file number stated in the returns. That file number was not the

appropriate file number for the respondent's returns of income derived

4. Each notice specified an amount for "taxable income", an amount

for the tax assessed on that taxable income and an amount said to

be the balance of the assessment. Other amounts not relevant to the

question in hand appear in the notices along with a total amount

payable. Some notices specified a figure for "additional tax for

incorrect return" and in the final year a figure for provisional tax

5. Gummow J concluded that the Commissioner, by serving in writing

by post upon the person liable to pay tax the notices of assessments

he had made, had completed the assessment process. His Honour further

concluded that the returns had named Prestige Toyota Trust as the

trust estate in respect of the net income for which the returns had

been lodged and that the use of that name served to confirm that

the trustee was assessed by reason of its office as trustee of that

6. The contrary view taken by the Full Court of the Federal Court

"In my view, it would be sufficient to the validity of

a notice of assessment made under s.99A if the notice set

out the share of net income upon which the Commissioner

assessed the trustee liable to tax and the tax payable by

the trustee. Those are the relevant particulars of the

assessment which, together with the name of the trustee,

should appear upon the notice.

As the present notices were not appropriate "Notices

of Assessment" because they did not contain the name of the

person assessed, the process of assessment is presently

incomplete and the (respondent) is entitled to succeed.

The (respondent) is entitled to a declaration that for

the purposes of the Act the notices are not "Notices

of Assessment" served by the Commissioner upon the

(respondent). In consequence, the income tax shown on

the face of the notices is not due and payable by the

(respondent)."

7. Division 6 of Pt III of the Income Tax Assessment Act 1936 (Cth)

("the Act") deals with the taxation of trust income. Central to Div.6

is s.95(1). That sub-section defines the expression "net income" as

"in relation to a trust estate ... the total assessable

income of the trust estate calculated under this Act as if

the trustee were a taxpayer in respect of that income and

were a resident, less all allowable deductions".

The definition goes on to except certain deductions which are not

8. Under Div.6 of Pt III of the Act, liability to pay tax upon the

net income of a trust estate may fall ultimately ((1) See s.100.)

either upon the trustee or upon the beneficiary. Whether a liability

to pay tax falls immediately upon the trustee or upon a beneficiary

depends upon the operation of the several provisions of that Division

which follow s.96. That section provides that there is no liability on

a trustee to pay income tax upon the income of the trust estate

except as elsewhere provided in the Act. Unless the Act expressly

provides ((2) Federal Commissioner of Taxation v. Belford [1952] HCA 73; (1952) 88

CLR 589 at 597.), as it does in ss.98, 99 and 99A, that the trustee

"is liable to pay tax", income tax is either payable by the beneficiary

or none is payable ((3) Tindal v. Federal Commissioner of Taxation

[1946] HCA 26; (1946) 72 CLR 608 at 619 per Latham CJ dissenting.). Sections 97,

98 and 99 deal with three cases: (1) where a beneficiary is presently

entitled to a share of the income, as distinct from a share of the net

income, of the trust estate, and is not under any legal disability

(s.97); (2) where a beneficiary is so entitled but is under a legal

disability (s.98); and (3) where no beneficiary is so entitled to any

part of that income or there is a part of it to which no beneficiary is

presently entitled (s.99). The operation of the three sections does

not define the tax liability of beneficiaries in respect of

distributions of income of a trust estate because income which

beneficiaries receive from a trust estate is taxable in their hands

under the general provisions of s.25 ((4) See Union-Fidelity Trustee

Co. of Australia Ltd. v. Federal Commissioner of Taxation [1969] HCA 36; (1969) 119

CLR 177 at 187-188 where Kitto J discusses the general framework of

the provisions in Div.6 relating to liability to pay tax and states the

effect of ss.97, 98 and 99 as set out above.).

9. In general, if a beneficiary is not under a legal disability and

is presently entitled to a share of the trust income, the trustee is

under no liability to pay tax in respect of that share of the income

of the trust estate and the beneficiary is liable for that tax ((5)

s.97.). Where, however, the beneficiary is under a legal disability

and is presently entitled to a share of the income of the trust estate,

the trustee is liable to pay the tax on that share of the net income

of the trust estate as if it were the income of an individual not

subject to any deductions ((6) s.98.). Where no beneficiary is

presently entitled to part of the trust income, the trustee is to be

assessed and is liable to pay tax in respect of a proportionate share

of the net income corresponding to the share of the trust income to

which no beneficiary is presently entitled ((7) ss.99, 99A.).

Where s.98, s.99 or s.99A applies, the Commissioner is required to

assess the trustee to tax in respect of the whole or part of the net

income of the trust estate of the year of income. In the present case,

it was asserted in the Federal Court that the Commissioner was required

to assess the trustee to tax by reason of s.99A and the deeming

provisions of s.100A.

10. By virtue of s.254(1)(b), the trustee was obliged to make a

return in respect of any income derived by him in a representative

capacity. Although s.254(1)(b) provides that the trustee is to be

assessed on the return, the trustee is not liable to pay tax on any of

that income save in respect of so much of the net income of the trust

as is brought to tax by s.98, s.99 or s.99A. Where the trustee is

liable to pay tax which is or will become due, the trustee is

authorized and required to retain sufficient funds to meet that

payment out of "any money which comes to him in his representative

capacity" ((8) s.254(1)(d).) and, to that extent but only to that

extent, the trustee is personally liable for that tax ((9)

s.254(1)(e).). The trustee is not liable to be assessed to tax or to

pay tax in respect of any share of the net income of a trust estate

which is included in the assessable income of a beneficiary under s.97

((10) cf. Fermanis v. Cheshire Holdings Pty. Ltd. (1990) 90 ATC

4,201.). But, where the trustee is liable to be assessed to tax, the

assessment imposes a debt to be borne by the estate ((11) Deputy

Federal Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32 at 42.).

Section 254(1)(b) directs that "each return and assessment shall,

except as otherwise provided by this Act, be separate and distinct from

11. Division 6 of Pt III contains no specific provision dealing with

the process of assessment. It is therefore necessary to look to the

general provisions of the Act as they govern that process.

12. The expression "assessment" is defined by s.6(1) to mean:

"(a) the ascertainment of:

...

(iv) in the case of any other taxpayer that is the

trustee of a trust estate ... so much of the net

income of the trust estate as is net income in

respect of which the trustee is liable to pay tax;

and of the tax payable on that taxable income or net

income".

The expression "taxpayer" is defined by s.6(1) to mean "a person

13. From a taxpayer's return, 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 the

taxpayer, and of the tax payable thereon ((12) s.166.). Where under

the Act any person is liable to pay tax, the Commissioner may make an

assessment of the amount of such tax ((13) s.169.).

14. Section 174(1) provides:

"As soon as conveniently may be after any assessment is

made, the Commissioner shall serve notice thereof in writing

by post or otherwise upon the person liable to pay the tax."

15. The validity of an assessment is not affected by reason that any

of the provisions of the Act have not been complied with ((14) s.175.).

16 Section 177(1) provides, at all material times:

"The production of a notice of assessment, or of a

document under the hand of the Commissioner, a Second

Commissioner, or a Deputy Commissioner, purporting to be

a copy of a notice of assessment, shall be conclusive

evidence of the due making of the assessment and, except in

proceedings under Part V on a review or appeal relating to

the assessment, that the amount and all the particulars of

the assessment are correct."

17. Section 204 provides that, subject to the provisions of Pt VI,

any income tax assessed shall be due and payable by the person liable

to pay tax on the date specified in the notice as the date upon which

the tax is due and payable, not being less than thirty days after the

service of the notice or, if no date is specified, on the thirtieth

18. As Kitto J explained in Batagol v. Federal Commissioner of

Taxation ((15) [1963] HCA 51; (1963) 109 CLR 243.), service of the notice of

assessment on the taxpayer fixes the ascertainment of the amount of the

taxable income and the amount of the tax payable by the taxpayer and

brings to an end the process of assessment. His Honour said ((16)

"(I)f 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 ...

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."

Service of the notice on the taxpayer brings the process of assessment

to an end in the sense that, in conformity with s.174(1), the notice,

which necessarily reflects the requisite elements of the calculation

that has been made, is served after the making of that assessment.

19. In Batagol, Kitto J was directing his comments to an assessment

of a taxpayer to tax on his own taxable income. In applying the

provisions of the Act to an assessment of a trustee to tax in respect

of the net income of the trust estate, it is necessary to take into

account the definition of "assessment" in s.6(1) as it relates to an

assessment of a trustee to tax in respect of such income. Hence the

process of assessment in such a case - and the notice - must specify,

not the taxable income, but "so much of the net income of the trust

estate as is net income in respect of which the trustee is liable to

20. The Commissioner contends that, there being no prescribed form of

a notice of assessment, the only requirements of a valid notice are:

(1) that the amount of the taxable income, or net income in the case

of a trustee, be specified in the notice;

(2) that the amount of the tax payable be specified also; and

(3) that the notice be served on the person assessed to tax.

21. The respondent, on the other hand, contends that the notice must

state the name of the taxpayer as part of "the particulars of the

assessment" within the meaning of s.177(1).

22. The weakness of the respondent's argument and, conversely, the

strength of the Commissioner's argument, is that the provisions of

the Act require, not that the name of the taxpayer be stated in the

notice, but that the notice be served "upon the person liable to pay

the tax" ((17) s.174(1).). The Full Court did not regard this as a

decisive consideration. That was because Hill J concluded that

s.177(1) would fail in its purpose unless the reference to "all the

particulars of the assessment" in the sub-section included the name of

the taxpayer. The purpose which his Honour attributed to the

sub-section was to avoid the need in recovery proceedings for the

Commissioner to prove that the taxpayer had a particular taxable income

or net income in the case of a taxpayer trustee, or to debar the

taxpayer from contesting that the amount of the taxable or net income

as shown in the notice was the taxpayer's income or that tax was

payable thereon. However, s.177(1) does not require that the notice

state the name of the taxpayer. Furthermore, s.177(1) is a facultative

provision; if the notice does not fall within the sub-section, the only

consequence is that the Commissioner cannot rely upon the provision.

23. This leads us to the conclusion that it is not essential to the

validity of a notice of assessment that it state the name of the

taxpayer liable to pay the tax. But we do not consider that this

conclusion is a complete answer to the question which has arisen.

That is because, on the view which we take of the provisions, it is

necessary that the notice should bring to the attention of the person

on whom it is served that the assessment to which it relates is an

assessment of that person to tax. The principal purpose of the notice

of assessment is to bring to the attention of the person on whom it is

served that such person is liable to pay on the due date the amount of

tax assessed in the notice on the income stated in the notice ((18)

See Federal Commissioner of Taxation v. Bayly [1952] HCA 31; (1952) 86 CLR 506 at 509

per Williams J). No doubt service of the notice on a taxpayer goes

some way towards achieving this purpose. But whether the purpose is

achieved in a given case must depend upon the form and contents of the

particular notice of assessment. Thus, to take an example given by

Hill J in the Federal Court, a notice assessing A to tax but served on

B instead could not stand as a notice assessing B to tax.

24. Subject to a problem which we shall identify shortly, we consider

that the recipient of the notice in the present case would have

understood it as a notice of assessment directed to the trustee of the

Prestige Toyota Trust, and that the notice relates to the assessment

of the trustee to tax in respect of a share of the net income of that

trust. A notice addressed to a nominated trust purporting to state

the tax payable is prima facie to be understood as a notice of tax

to be met out of the trust estate, not as a notice of tax assessed

to a beneficiary in the estate. Such a notice is therefore to be

understood as directed to the trustee in whom the assets of the trust

are vested and who is authorized and required to retain the money

needed to pay the tax assessed out of any money which comes to him in

25. There are several indications, apart from the naming of the trust

and the address stated in the notice, that the notice of assessment

relates to the tax liability of the trustee. The notice followed a

return of income lodged by the respondent as trustee of the trust.

The tax file number on the notice corresponded with that in the

return, so that the return and the assessment made thereon were thus

kept "separate and distinct from any other", as s.254(1)(b) directed.

And what was expressed as the amount of taxable income was specified

26. The problem to which we referred earlier arises from a lack of

correspondence between statements in the return of income relating to

the income of the trust estate and the amount of the income as stated

in the notice on which tax was assessed. In Sched.A of the return

there appears under the heading "STATEMENT OF NET INCOME FOR INCOME

"Schedule

2 Net profit as per

statement of profit

and loss $4,630,328

Less

7 Investment allowance (1,498)

Net income distributed

to beneficiaries $4,628,830"

Then, in Sched.A/1 to the return, there appears under the heading

"STATEMENT OF DISTRIBUTION OF NET INCOME" the following:

" Net income

Name No and class distributed

$

LS Perron 50 "A" 116

Ronald Lyon

Australia (Vic)

Pty Ltd 1,866,850 "B" 4,320,126

GJ Gadsdon 26,670 "B" 61,718

BP Black 26,670 "B" 61,718

JE Potts 20,002 "B" 46,287

DE Potts 20,003 "B" 46,289

Brencolda Nominees

Pty Ltd 40,005 "B" 92,576

2,000,250 $4,628,830"

27. The amount thus stated to have been distributed to Ronald Lyon

Australia (Vic) Pty. Ltd. corresponds precisely with the amount set

against "Your taxable income is" in the notice of assessment served on

the respondent. It is not suggested that this means that the notice

is to be understood as a notice which assesses Ronald Lyon Australia

(Vic) Pty. Ltd. to tax. Nor could the notice be so understood. A

notice of assessment of a beneficiary to tax (other than a default

assessment) would be made on the beneficiary's return of income and

would not be identified by the tax file number of the trustee. The

inference to be drawn from the notice which states what "Your taxable

income is" in the context of the trustee's return bearing the same tax

file number is that the Commissioner has rejected the basis on which

the return was prepared, namely, that the sum of $4,320,126 was

distributed to a corporate beneficiary who was presently entitled to

28. As we noted earlier, the Commissioner asserted in the Federal

Court that he was required to assess the trustee to tax by reason of

the provisions of ss.99A and 100A. Whether the basis on which the

Commissioner made the assessment was disclosed in any adjustment sheet

accompanying the notice is a question which was not fully explored

in the courts below. But, whatever the basis of the Commissioner's

assessment may have been, the notice purported to define the tax

liability of the trustee to be met out of money in the trust estate.

29. For the foregoing reasons, the notice of assessment was, in our

view, a notice of assessment of the respondent to tax.

30. The appeal should be allowed. The orders of the Full Court of

the Federal Court should be set aside. In lieu thereof, the appeal to

that Court should be dismissed. In accordance with the conditions

imposed by this Court in granting special leave, the order for costs

made in the Full Court should not be disturbed and the appellant

should pay the respondent's costs of the appeal to this Court.