Re Mondin, B.J. v. Ex parte Bradshaw, D.A. [1985] FCA 228

under s.221YE of the Income Tax Assessment Act 193 constitutes a chose in action which may be assigned prior to

Income Tax Assessment Act 1936 ss.221YE(1), 221YB(1), 221H(2).

Re: BASIL JOHN MONDIN (A BANKRUPT) EX PARTE: DAVID ANTHONY

BRADSHAW (AS TRUSTEE OF THE PROPERTY OF BASTL JOHN MONDIN, +

No. 143 of 1981 ley FlECFIVED i 11 JUN 1985 \Q\ rvza ut couat oF AUSIRRLIA

Ex parte: DAVID ANTHONY PRADSHAW (AS TRUSTEE OF THE PROPERTY OF BASIL JOHN MONDIN, A DERTOR)

Date of Order: 7 June 1985 Where Made: Melbourne. ORDER

The applicant hold the sum of $866.24 as part of the

divisible property of the debtor referred to ain the

Ex parte: DAVID ANTHONY BRADSHAW (AS TRUSTEE OF THE PROPERTY OF BASIL JOHN MONDIN, A DERTOR)

Pursuant to s.134(4) of the Bankruptcy Act 1966 'the Act) as that section applies in relation to the administration of the estate of Basil John Mondin (the debtor), who, entered into adeed of arrangement on 24 August 1981 pursuant to 8.237(2) of the Act, the Registered Trustee of that deed

applies for directions aS to the disposition of the sum of

$866.24. That sum is the amount of a refund of provisional

tax paid by the debtor in respect of income tax relating to

On 6 August 1981 the debtor signed an authority pursuant to s.188 of the Act, authorising the registered trustee to call a meeting of creditors and take over control of his property. The meeting of creditors was subsequently held on 24 August 1981. A special resolution was passed at the meeting which required the debtor to execute a deed of

arrangement in the form of the draft presented to the meeting.

The debtor executed the deed of arrangement on the same day. The deed provided, amongst other things, that the debtor convey and assign to the registered trustee all his "estate".

The word "estate" is defined in clause 1 of the Deed to mean:

"... all the property of the debtor specified in the Schedule hereto but does not include after acquiring (sic) property". ' The schedule, in turn, defines the "divisible property" of the debtor, and it provides specifically that the expression "divisible property" is to have the same meaning as

the meaning ascribed to it 1n 5.187 of the Act, as if the deed

"Divisible property" is defined 1n s.187 specifically in

",.. means the property, other than property that was acquired by, or devolved on, the debtor on or after the day on which he executed the deed, that

would be divisible amongst his creditors under Part VI if he had become a bankrupt on that day;" Accordingly, it is necessary to turn to Part VI of the

Act, s.116(1) of which provides that subject to the Act:-

(a) all property that belonged to, or was vested in, a bankrupt at the commencement of the

bankruptcy, or has been acquired or is acquired by him, or has devolved or devolves

on hin, after the commencement of the bankruptcy and before his discharge; and

{b) the capacity to exercise, and to take proceedings for exercising, all such powers an, over or in respect of property as might have been exercised by the bankrupt for his own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his discharge, ..."

1s property divisible amongst the creditors of the bankrupt.

It 21s to be noted that s.116(1) provides that property which is acquired or which devolves upon the bankrupt after

his bankruptcy but before his discharge is divisible property.

However, as indicated above, the deed of arrangement executed by the debtor specifically excludes such property from that

which is conveyed or assigned by him to the trustee.

Following the signature by the debtor of the authorization under s.188 the applicant found that the debter had not filed income tax returns for the years ending 30 June 1979, 30 June 1980 and 30 June 1981. The applicant then

assisted the debtor in the preparation of income tax returns

for those years and filed those returns on behalf of the debtor. Whether he did this before or after the deed of

In January 1982 the Deputy Commissioner of Taxation

Notice of Assessment for the year ended 30 June 1979

showing a credit balance being a provisional tax credit

of $866.24 after deduction of tax assessed at $1,377.93

less $417.00 rebates and other credits, from $1,827.17

Refund notice for the year ended 30 June 1980 showing no debits and carrying forward the $866.24 refundable to

Refund notice for the year ended 30 June 1981 carrying forward the $866.24 as refundable to the debtor accompanied by a cheque for that amount drawn to the

Having regard to the form of the assessment notice I think it correct to regard the $866.24 as a refund of provisional tax paid in respect of the income year 1978/79. It is to be observed that the tax refund of $866.24 was received by the applicant in his capacity as tax agent for the debtor and it is still held in his trust account. On 9 April

1984 a sequestration order was made against the estate of the

debtor by the Federal Court sitting in Brisbane, in respect of

debts incurred by the debtor following the execution by him of

The applicant seeks directions from this Court as to whether it is his duty to hold the sum of $866.24 for the trustee in bankruptcy under the sequestration order of 9 April

1984, or for the debtor, or as property assigned to him under the deed of arrangement. The trustee in bankruptcy of the debtor and the debtor have both been apprised of these

proceedings and have chosen not to make any submissions to the

Section 221YE of the Income Tax Assessment Act 1936 (the

"(1) Where a taxpayer has paid provisional tax in respect of income of any year of income, and an assessment of income tax in respect of that income has been made, or the Commissioner is satisfied that no income tax will be payable in respect of that income, the Commissioner shall credit the amount of that provisional tax in payment

(a) such income tax (1f any) as is payable by the taxpayer in respect of that income;

{b) any provisional tax notified to the taxpayer in respect of ancome of the year next succeeding that year of income; and

(c) any other income tax or any withholding tax payable by the taxpayer,

and shall be liable to refund to the taxpayer the amount of that provisional tax not so credited.

'income tax' includes income tax payable under a State income tax law;

'provisional tax' includes any tax of a similar nature to provisional tax that is payable under a State income tax law."

This provision imposes a duty on the Commissioner to ascertain

as soon as it is reasonable to do so after the lodging by the

taxpayer of a return of income for the relevant year, the amount of the sums, 1f any, to be credited in accordance with

s.221YE of the ITA Act and to refund any excess of provisional

tax paid over the sums so credited. There is therefore in every taxpayer of provisional tax an entitlement enforceable by law to receive the appropriate refund. It may be that the only enforcement process available is by mandamus. But this 1s of no importance. The statutory obligation to ascertain the necessary credits and refund any excess of provisional tax to the taxpayer is imposed by law on the Commonwealth officer and will be obeyed. Certainly the taxpayer has a legal right

to the performance by the Commissioner of this duty.

It may be observed that the facts by reference to which

the amount of the refund, if there 1s to be one, depends, are

necessarily in existence, at the latest, at the end of the year succeeding the year with respect to which the provisional tax is paid. At the end of that latter year the tax for the previous year has accrued due to the Commissioner and the circumstances relevant to the making of a demand for provisional tax for the succeeding year are established, as 1s also liability for any outstanding tax. Where the taxpayer has provided the relevant income tax returns, the liability of

the Commissioner to make the refund is established when the

procedural step of issuing the relevant assessment is

But the question is whether at the date of the deed of arrangement there was in the debtor an interest in any portion of the amount of provisional tax, paid by him, and, if so whether that interest constituted property in his hands. Provisional tax of $1827.17 had been paid by him in or prior to the year ending 1979 in respect of possible liability to

income tax for that year. It was paid pursuant to s.221YR(1)

On the evidence one is required to proceed on the basis that at the date of the deed the debtor had not made a return of income with respect to any of the years of income ending 20 June 1979, 30 June 1980, or 30 June 1981. Accordingly, the condition for performance of the functions which the Commissioner would have performed under 5.221YE of the ITA Act, had those returns been made, had not been satisfied. Noa duty had then arisen in the Commissioner to make any refund to

It is apparent however, on the facts relating to the income of the debtor in the relevant years and which would have been disclosed to the Commissioner if income tax returns

for those years or even those for the years ending 30 June 1979 and 1980 had been before him, the Commissioner would have

issued the refund notices referred to above. In that event

the stated refunds would, no doubt, have been paid to the

debtor. If not the obligation to do so would have been

enforceable by some appropriate process. Although the refund was not recoverable by action against the Commissioner, the

duty imposed on him by Parliament as an officer of the

Commonwealth to make the refund on behalf of the Commonwealth

It is apparent also that at the date of the deed and indeed for a considerable time before then the debtor had the capacity to activate the performance of the functions of the

Commissioner with respect to the matter of the refund by

To ascertain whether there was at the relevant time a

relevant entitlement in the debtor toa refund and if there were, the nature thereof and whether it was assignable, regard

"For the purpose of enabling the income tax that will be payable by taxpayers to whom this section applies to be collected during the financial year for which the income tax is levied, a person other than a company, and a company in the capacity of a trustee, deriving assessable income, not being salary or wages, 18 liable to pay provisional tax in accordance with this Division."

It is from the statutory purpose expressed in this provision that the existence and nature of the legal relationship

between the taxpayer and the Commonwealth with respect to the

Section ?21R(1) of the ITA Act provides that an amount payable under Division 3 of Part VI of that Act, which includes an amount payable under s.221YB(1) of the same Act, shall be a debt due to the Commonwealth and payable to the

Commissioner, and may be sued for and recovered in any Court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name. At all material

times s.221U of the ITA Act, which was repealed by Act No. 123

of 1984 with effect from 14 December 1984, provided that:-

"221U. All moneys received by the Commissioner in pursuance of this division (including moneys the right to receive or to recover which has been

assigned to the Commonwealth by a State income tax law) shall form part of the Consolidated Revenue

Fund and there shall be payable out of that Fund (which 158, to the necessary extent, hereby appropriated accordingly) such amounts as the Commissioner becomes liable to pay in accordance with the provisions of this Division."

The provisions of s.221YE of the ITA Act may be compared with $.221H(2) of that Act Which deals with the ultimate disposition of the amount of instalments paid to the

Commonweath against possible future tax in respect of income

of an employee by tax stamps or group certificates. Section

"Where the Commissioner receives from an employee a tax stamps sheet or a group certificate, or both, in respect of deductions made in any year of income from his salary or wages and the tax payable by the employee in respect of that year of income has been assessed, the Commissioner shall -

(a) aif the sum of the amount represented by the face value of the tax stamps duly affixed to any such tax stamps sheet and the amount of the deductions shown in any such group certificate does not exceed the tax payable

by the employee in respect of that year of income - credit that sum in payment or part payment of that tax;

(b) if that sum exceeds that tax - credit so much of that sum as is required in payment of that tax and any other tax payable by the employee, and pay ta the employee an amount equal to any excess; or

payable by the employee - pay to the employee an amount equal to that sum."

The obligation of the Commissioner with respect to an ultimate excess 1S expressed as an obligation to pay. In s.221YE of the ITA Act the corresponding obligation is "to refund" the excess. No doubt this reflects the circumstance that s.221YE is dealing with money paid by the taxpayer himself whereas

$,221H(2) operates in respect of money paid by the employer of

Commissioner of Taxation v. Official Receiver & Anor (1956) 95

l. that s.221H(2) does not confer on the taxpayer to whom a sum is payable thereunder a right to sue the

2. it imposes upon the Commissioner a duty to pay the amount to which the taxpayer is entitled to the taxpayer

3. @ sum paid under the section to a taxpayer who is

bankrupt, in respect of income earned by him after sequestration of his estate has the character of income. The amount received may be the subject of an application by the trustee in bankruptcy for an order under s.131 of

the Act that a portion thereof be made available to the

although, as indicated by Williams J. in Travis' Case (supra) at p.311l, an action to recover the excess over tax liability which is revealed in a relevant assessment might be brought against the Commonwealth it would seem that no such action could be brought by a taxpayer before the submission by him of his taxation return for

the relevant years, or possibly before the issue of an

the transaction arising under the ITA Act with respect to a payment made against possible future liability for tax is one between the Commonwealth and the taxpayer and

Both s.221H(2) and s.221YB are in Division 3 of Part VI of the ITA Act. That part is headed "Collection and Recovery

of Tax". The requirement that payments be made against an employee's contingent liability for tax is, as described in the statute, "for the purpose of enabling the collection by instalments from employees of income tax". See s.221(C)(1) of the Act. It is of course inherent in the system that there is

the possibility that the instalments paid will exceed the tax

liability of the employee taxpayer. For the purpose of adjusting the situation as between the Commonwealth and the taxpayer so that it will accord with the actual liability of the taxpayer for tax according to law, a duty is imposed on the Commissioner under s.221H(2) to make an assessment which

will disclose that liability and the amount of any excess and

With respect to provisional tax one finds in s.221YB(1), by which liability to pay provisional tax is imposed, a corresponding statement of purpose for that imposition, namely, "to enable income tax to be collected during the financial year for which the tax is levied." That ais the extent of the burden which is imposed. It is the statutory intention that subject to the implementation cf the purpose the money paid is to be refunded to the taxpayer and the Commonwealth 15 liable to make that refund. From the moment of payment of provisional tax there exists a 'legal relationship between the Commonwealth and the taxpayer created by the statute, pursuant to which, subject to the provisions of s.221YE, an amount which 1s in excess of the amount

required for the purpose expressed in s.221YR(1) shall be

relation to this liability suitable machinery provis2zons were

necessary and are provided. They are to be found in s.221YE(1) which also makes provision in paras. (b) and (c)

of that section concerning provisional tax for a year

succeeding that for which the provisional tax in question was paid and outstanding tax. But s.221YE is more than machinery

in that, from it, there may be gathered a legislative

intention that no liability arises in the Commissioner in respect of any excess of the provisional tax paid over

liability for tax, pending the issuing of an appropriate

assessment. Also, it provides for the appropriation of the provisional tax paid to provisional tax with respect to a year beyond the year of income in relation to which it was paid and for a deduction in respect of any outstanding tax liability. But it would seem that by the effect of 5.221YRB the terms of the relationship between the Commonwealth and the taxpayer with respect to provisional tax paid in relation to any year are established as from the moment of payment thereof. Thase terms flow from the stated purpose of the payment. There is an obligation in the Commonwealth to hold the amount paid, upon fulfillment of the purpose, to the use of the taxpayer.

That that obligation is itself qualified by statutory authority in the Commissioner (s.221YE) to appropriate the amount paid to additional provisional tax, if payable, and to outstanding tax liability if there is one, does not go to the nature of the relationship. Subject to this qualification the obligation subsists. It is an obligation which, for reasons of convenience, is not enforceable against the Commissioner until the relevant tax liabilities of the taxpayer are established by an assessment. Whether at that stage the

obligation of the Commonwealth may be enforced by action is

unimportant. At all relevant times the obligation of the

Commonwealth to use the money for the recoupment of tax which

is payable by the taxpayer and return any balance to the

An obligation to pay aosum of money in the future, measureable according to the operation of law in relation to

such events as may occur before the time for payment, isa

chose in action. Such a situation is to be distinguished from

one in which there is merely a spes or expectation. See

Norman v. Federal Commissioner of Taxation (1963) 109 CLR 9.

And even where the legal process which may be instituted in respect of the amount payable may be limited, as perhaps that in respect of the excess of provisional tax over actual tax liability may be, the right of the taxpayer is still in the

It is ta be observed that with respect to the assignment

of the entitlement of the interest of the taxpayer with respect to the excess or possible excess of his provisional payment of tax, the critical factor 1s that the assignment is not of money but of ae right. In Shepherd v. Federal

Commissioner of Taxation (1965) 113 CLR 385 the High Court of

Australia considered a gift by deed poll whereby the donor assigned his "right title and interest in an amount equal to ninety per cent of the income which" might accrue during 'a period of three years under a licence agreement to royalties directly proportionate to the number of castors manufactured by the licensee. The assignment was called in question on the

ground that the subject thereof was but a mere spes or

expectancy. On this question it was said by Barwick C.J., at

"The basis of this submission is that in the event there may not be any amount payable for royalties because no sales of castors may be made. But this misconceives the matter. That a promise may not be fruitful does not make it ancapable of assignment".

And the same may be said of a statutory obligation. In the

"The deed exhibits in its operative words, and underlines twice later, the intention of effecting an immediate alienation of property presently existing, presently belonging to the assignor, and consisting of a right, title and interest in respect of royalties to become payable by Cowen under the licence agreement."

As such it constituted an effective assignment of that right,

title and interest. In Shepherd's Case (supra) ait was

critical that the words of gift be so construed because the transaction was one without consideration. As Barwick CJ said

"The question therefore, in my opinion, is a narrow

after acquired property." Similarly, in the case of the deed of arrangement under consideration in this case the same question arises. Is the deed to be interpreted as an assignment of the right in the debtor as against the Commonwealth at the date of the deed, to

such excess as there was or might be in him in respect of the

amount of the provisional payment he had made over and above his relevant tax liabilities? The words of the deed are set out above. If so, then the question is whether the right of the debtor at the date of the deed in respect of the amount of provisional tax paid by him was an item of property presently existing and presently belonging to the debtor. If it was then clearly it was assigned. In my opinion the answer to each question is "yes". Just as the right of the assignor to

receive the royalties which was considered in Shepherd's Case

(supra), was regarded as property so described, so to my mind, the right of the debtor in respect of any excess of provisional tax paid over the permissible appropriations thereof pursuant to s.221YE of the ITA Act, was property so described. The circumstance that the right arose out of the provisions of a statute rather than out of contract or deed is

At the date of the deed of arrangement all the facts by reference to which the liability of the Commonwealth to account to the taxpayer in respect of provisional tax paid had

occurred. That liability is independent of the existence of a

duty in the Commissioner to make a refund under s.221VYE. That duty had not arisen. But the relationship between the taxpayer and the Commonwealth under which the taxpayer was entitled by law to recover the excess of his liability for tdk for the relevant year of income, over additional provisional tax if payable and outstanding tax liabilities, was one in which the taxpayer had an effective and subsisting right for

the satisfaction of which the law had provided. Even if the

imposition of provisional tax for the year succeeding the year

for which provisional tax was paid involved the exercise of a discretion by the Commissioner, according to law, the existence and nature of the right to recover the ultimate balance due to the taxpayer remained. In this case no such provisional tax was assessed. That the refund may be subject to lawful deductions does not affect the nature and quality of the right to recover the balance after those deductions. That such a right is comprehended in the conveyance of all my

property is, I think, clear. Property, according to Lord

"... the most comprehensive of all the terms which can be used, inasmuch as it is indicative and

descriptive of every possible interest which the party can have."

His Lordship was speaking with respect to real property, but his statement 1s by its nature applicable to personalty. And it is clear that the right to royalties the subject of the assignment in Shepherd's Case (supra) was regarded as property in the assignor. The same principle appears to have been

adopted by the majority in Federal Commissioner of Taxation v.

Everett (1980) 143 CLR 440. See also Federal Commissioner of

In the present case the critical factors are that at the date of the deed there existed a relationship between the

Commonwealth and the taxpayer arising out of the statutory

purpose for which the provisional tax was paid. Further, the

facts by reference to which the disposition of that

provisional payment would be determined had then occurred, and it was therefore within the power of the debtor to activate the exercise by the Commissioner of his functions under

The restriction referred to above with respect to proceedings for recovery of the amount due from the Commissioner by a taxpayer is for the convenience of the system. It relieves the Commissioner from having to cope with the demands of persons claiming to be assignees, and perhaps having conflicting claims. This much is clear from the majority judgments in Travis' Case (supra). It has nothing to do with the existence or non-existence of the taxpayer's

entitlement to receive a refund in due course according to

In Travis' Case (supra) the question was whether a refund of amounts paid as instalments against tax after bankruptcy in respect of years of income occurring after the bankruptcy were income for the purposes of s.91(1) and s.101 (now s.131) of the Act. At the time the question arose an assessment had been issued stating the amount of the refund available to the bankrupt. It was held to be income. The basis for this was expressed by Williams J. at pp.315 and 316

"His Honour, in his reasons, said that it would be strange indeed that where a taxpayer has paid to

the commissioner a sum which 1s more than sufficient to discharge his liability for tax, the excess amount which the taxpayer is entitled to receive back from the commissioner can be regarded

as earnings or income of the taxpayer within the meaning of s.101. But what is there strange about

that? The installments on account of tax that were deducted under the provisions of Pt. VI, Div. 2 of the Assessment Act were made from the salary or wages of the employee. Apart from these provisions the employer would have been bound to pay the bankrupt his salary or wages in full. It was part of these earnings that were appropriated for that purpose. But it was only a provisional appropriation. The commissioner is obliged to repay any sum found to he inexcess of the required amount. The commissioner is obliged to restore the excess to the taxpayer and if the over collections were made out of salary or wages the restoration must be a refund of part of these salary or wages. It is a refund of part of the earnings of the bankrupt and money which he is entitled to retain in the absence of an order of the court under s.101 of the Act."

Similarly, a provisional payment 1s only a provisional appropriation of funds against a possible liability for tax. The fact that the debtor is the only person who can givea good discharge to the Commissioner 1s quite incompatible with the existence of the right in the debtor referred to above. The person who has assigned his entitlement to a sum of money for consideration is obliged to take any necessary steps to implement the assignment and, if he receives the amount

assigned, to pay it to the assignee. The closing observations

of Fullagar J. in his judgment in Travis' Case (supra) at

"The view which I have expressed does not mean that an amount which becomes payable to an employee taxpayer under s.221H(2)(b) is incapable of being assigned or charged in the sense in which e.g. worker's compensation and some pensions are incapable of being assigned or charged. It does not deny the possibility of a transaction which will bind the sum received by the payee by making

him a trustee of it for an assignee or chargee. But it does mean that the responsibility of the commissioner to the taxpayer is to him, and is not transmuted by the bankruptcy of the taxpayer into a liability to the official receiver under the

The prospect of a refund, Which may be for a considerable sum, may obviously be an important commercial asset. There appears to be no principle by reference to which dealings with it by a taxpayer should be restricted, The assignment of the refund which on the facts will in due course be payable in the course of the operation of law cannot be made in a manner which will bind the Commissioner. But the assignment for consideration of such an interest will be implemented by the imposition upon the assignor of appropriate duties. Such duties are to be implied 1n a conveyance for consideration of all one's property. Having made such a

conveyance the assignor when he receives the money from the

Commissioner is a trustee thereof for the assignor.

Having regard to the foregoing, the order of the Court will be that the applicant hold the sum of $866.24 as part of

the divisible property of the debtor referred to in the

I certify that this and the nineteen preceding pages are

a true copy of the Reasons for Judgment herein of of his Honour Mr. Justice Smithers.

Page 20 line 19 in place of he word "assignor" insert