The High Court has granted special leave to appeal the decision in Commissioner of Taxation v Australian Building Systems Pty Ltd(in liq) [2014] FCAFC 133 which held that a liquidator is not required to retain funds from the proceeds of sale of an asset to pay tax before an assessment is issued.

Practical Implications

Regrettably, the tax obligations of insolvency practitioners will continue to be uncertain for some time. It will likely be at least 12 months before the High Court hands down its decision on the appeal. If the appeal is allowed it would generally have retrospective application. Hence practitioners that rely on the Full Federal Court decision in releasing funds could be exposed to the risk of personal liability.

A further issue is the Commissioner's contention that tax on a capital gain is a first priority expense under s 556 of the Corporations Act 2001. The Federal Court did not address this point, instead deciding the case based on s 254 of the Tax Act. Accordingly this important practical issue is unlikely to be resolved in the High Court's decision.

Careful management and appropriate resources will be required to mitigate tax risks for insolvency practitioners.


The liquidators of Australian Building Systems Ltd caused the company to dispose of a property for a capital gain. The Commissioner contended that the liquidators were required to retain funds from the sale proceeds to pay tax arising from the gain even though no assessment had been issued. This obligation was said to be imposed by s 254 of the Income Tax Assessment Act 1936 (Tax Act).

This section applies to a 'trustee' which is defined to include a liquidator, receiver and an administrator. It provides that a 'trustee':

'is authorised and required to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains'; and

'is hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he or she has retained, or should have retained'; (emphasis added).

The Full Federal Court rejected the Commissioner's position, holding that the payment and retention obligations in s 254 arose only on the issue of a notice of assessment. The Commissioner has succeeded in obtaining special leave to appeal the decision to the High Court.