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09 Oct 14 Liquidator not obliged under s 254 to retain moneys - Australian Building Systems

The Full Court of the Federal Court (Edmonds, Collier and Davies JJ has dismissed the Commissioner's appeal from the decision of Logan J in Australian Building Systems Pty Ltd v FCT [2014] FCA 116 (21 February 2014).

Logan J held that the liquidators of a company, Australian Building Systems Pty Ltd ACN 094 238 678 (In liquidation) (ABS), were not obliged, under s 254(1)(d) of ITAA 1936, to account to the Commissioner out of the proceeds of sale, for any capital gains tax liability that crystallised on the sale of an asset that belonged to the company before liquidation. The Court held that what the High Court had said in relation to s 255 in Bluebottle UK Ltd v FCT [2007] HCA 54; (2007) 232 CLR 598 (Bluebottle) applied equally to s 254, so that "content can be given to the obligation imposed by s 254(1)(d) only if an assessment has issued".

Section 254(1)(d) relevantly provides:

"254 (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply...

(d) He or she is hereby authorized 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."

Edmonds J (with whom Collier J agreed) noted the concession by counsel for the Commissioner that any assessment that the Commissioner would issue would be issued to ABS, and not to the liquidators. Edmonds J said, in this regard, at para 21:

"This brings me to a concession made by senior counsel for the Commissioner during the course of argument. He conceded...correctly in my view, that the words 'as is sufficient to pay tax which is or will become due' referred to tax due or to become due by the liquidators (trustees) in their representative capacity. In other words, it did not embrace tax due, or to become due in the future, in the sense of owing, under an assessment of ABS."

Edmonds J then amplified why this concession meant that s 254(1)(d) had no application. His Honour said, at paras 28-29, as follows:

"That s 254(1) is a collection provision facilitating the collection of tax, rather than one facilitating the assessment of a liability to tax, informs both the context in which the words 'the tax which is or will become due' are to be construed and the outcome of that construction. They contemplate an existing liability or a state of affairs of which it can be presently said a liability will arise in the future.

Prior to the issue of an assessment to the liquidators (trustees), in reliance on one or more of the provisions of Div 6 of Pt III of the 1936 Act referred to in the passage from the judgment of the High Court in Prestige Motors extracted above, there can be no tax which 'is ... due' by the liquidators, in the sense of 'owing'. Nor, prior to that time, can it be said that tax 'will become due' in the sense of 'owing', by them because if one or more beneficiaries are presently entitled to the whole of the income of the trust estate, the trustee or trustees will have no liability. The words, 'will become due', in the sense of 'owing', predicate nothing less than certainty, and that, in my view, cannot be predicted prior to the issue of a relevant assessment; but if it can be predicted on the facts of a particular case, e.g., Harmer v Commissioner of Taxation (1991) 173 CLR 264 [[1991] HCA 51], it cannot be predicated on the facts of this case where it was common ground that the assessment, when it did issue, would issue to ABS."

It will be seen, therefore, that Edmonds J's reasoning did not rely on the High Court's reasoning in Bluebottle.

Davies J also supported the dismissal of the Commissioner's appeal, but indicated that she "[did] not think that it [was] a complete answer to the Commissioner’s case that...any assessment would issue to the company". Her Honour said, at para 34:

"On its proper construction, it seems to me that the section [s 254] contemplates that in the circumstances where the section is engaged, a post appointment tax liability, if any, will be assessed to the liquidator in his or her representative capacity, rather than to the company."

Davies J concluded, at para 35:

"That said, the analysis serves in my view to confirm that any personal liability falling upon the liquidator arises only if, and where, an assessment has issued, and there is an amount of tax that “is or will become due” in the sense of “assessed as owing”. For the reasons expressed by Edmonds J, the Commissioner’s construction of the phrase “is or will become due” as it is used in s 254(1)(d) is to be rejected. In my view the primary judge was correct to hold that the reasoning in Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54; (2007) 232 CLR 598 in respect of the proper construction of s 255 of the ITAA36 applies equally to the proper construction of s 254, and that s 254(1)(d) is to be read as referring to an amount of tax that has been assessed. "

FCT v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133 (8 October 2014).

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