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The ATO has published a Decision Impact Statement in relation to the decision of the Full Court of the Federal Court in FCT v Park [2012] FCAFC 122; 2012 ATC 20-344.

The decision concerned a Commissioner's garnishee notice served on a purchaser of land for monies due by it to a taxpayer vendor under a contract of sale where that land was subject to a pre-existing registered mortgage.

The taxpayer was the sole registered proprietor of a property which was subject to a registered mortgage to the National Australia Bank ("NAB"). In 2007, the taxpayer granted a second mortgage securing the sum of $430,200 which was duly registered. The taxpayer entered into a contract in January 2013 to sell the property for the sum of $1,675,000 and settlement was to proceed in February 2010. The Commissioner became aware of the contract and issued a notice pursuant to s260-5 in Schedule 1 to the Taxation Administration Act 1953 ("garnishee notice") in January and February 2010. The Commissioner was unaware that an unsecured creditor had served a bankruptcy notice on the taxpayer and in February 2010 had applied for the appointment of an interim trustee.

At settlement of the contract, the second mortgagee expected there would be insufficient funds from the purchase price to discharge the total amount secured by both the NAB mortgage and its mortgage. The second mortgagee had agreed to provide a release of the second mortgage in exchange for the balance amount remaining after discharge of the NAB mortgage.

Initially, the contract did not settle because the purchaser was unwilling to pay the balance amount because it sought to pay the Commissioner in accordance with the garnishee notice. Ultimately, the contract settled on the basis that the sum of $75,508.64 (being the sum sought by the Commissioner) be paid into Court and the second mortgagee assign its rights and interest in the disputed sum to the Trustee. The second mortgagee took the remaining funds in exchange for the release of the second mortgage.

The Commissioner sought to enforce his rights under the garnishee notice.

The Full Court of the Federal Court by majority (with Siopis J dissenting) upheld the appeal by setting aside the declarations and orders previously made by a Federal Magistrate, and declared that the Commissioner is entitled to the sum of $75,508.64 paid into Court together with any accretions.

The ATO states that the decision confirms the ATO view in relation to the Commissioner's rights arising from a garnishee notice and stated in paragraphs 66 and 67 of Practice Statement Law Administration PS LA 2011/18.

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