As many readers would know, the High Court will soon hear an appeal of the decision of the Full Federal Court inCommissioner of Taxation v Australian Building Systems Pty Ltd (in liq)  FCAFC 133. The decision of the High Court will undoubtedly have significant ramifications for liquidators, administrators and receivers; it will clarify whether they are required to retain funds to pay tax even though a tax assessment has not been issued.
The facts of the case are relatively straightforward: the liquidators of a company caused the company to sell an asset, which gave rise to a Capital Gains Tax event. The liquidators applied for a private ruling from the Commissioner as to whether they were required to hold the proceeds of sale until an assessment was issued. The Commissioner said they did, but the liquidators disagreed and appealed that private ruling.
The Commissioner's chronology and written submissions were made available this week. In short, the submissions argue three points:
- The Full Federal Court was incorrect in finding that a capital gain would be assessed to the company in liquidation and not the liquidators, and that therefore no amount of tax was, or ever could, become 'due' within the meaning of section 254(1)(d) of the Income Tax Assessment Act 1936 (Cth).
- The Full Federal Court was incorrect in finding that s254 was merely a 'collecting section' in the sense that it imposes no liability on an agent or trustee which has not otherwise been imposed by some other law.
- The Full Federal Court was incorrect in finding that no amount was 'due' before an assessment was issued. This is, among other reasons, because:
- 'due' means 'owing', not 'presently payable';
- the Full Federal Court's decision allows funds to be depleted by a liquidator in the time between the receipt of those funds and the issue of an assessment, reducing the capacity of personal liability to act as a spur to the performance of the liquidator's retention obligations; and
- a liquidator is easily able to ascertain an amount sufficient to pay the tax in respect of any income, profits or gains by applying the relevant marginal tax rate to those funds. If the liquidator becomes aware of allowable deductions or losses that would reduce the amount of tax payable, the amount retained can adjusted accordingly. A liquidator is able to retain an amount sufficient to meet the potential tax liability without knowing with precision the ultimate net tax liability of the company.
Interestingly, the Commissioner's submissions indicate that the liquidators do not intend to support the Full Federal Court's findings on the issues in points 1 and 2 above.
The liquidators' written submissions are due on 12 June 2015.