CGT liability for receivers and liquidators update Commissioner’s appeal dismissed
CGT liability for receivers and liquidators update Commissioner’s appeal dismissed October 2014 The dismissal of an appeal of a recent Federal Court decision means that the operation of section 254 of the Income Tax Assessment Act 1936 (Cth) has been clarified. The obligation of a liquidator or receiver to retain proceeds from the sale of assets that generate a capital gain only arises once a tax assessment has issued. In Australian Building Systems Pty Ltd v Commissioner of Taxation [2014] FCA 116, Justice Logan of the Federal Court of Australia found that liquidators are not obliged to retain funds pursuant to section 254 until they receive a tax assessment from the ATO. That decision is considered in our earlier Insight “CGT liability for receivers and liquidators”. The Commissioner of Taxation lodged an appeal on 13 March 2014. On 8 October 2014, the Federal Court of Australia dismissed the appeal in a unanimous decision. From an administrative perspective, Justice Logan’s judgment remains problematic in that it: ■■ renders section 254 ineffective if the section is intended to operate as a mechanism for the Commissioner to collect tax revenue from an insolvent entity ■■ creates very different outcomes for creditors depending on the timing of when insolvency proceedings start. An insolvency that spans 2 separate financial years may result in an assessment being issued by the Commissioner that results in the funds available for distribution being diminished. On the other hand, an insolvency that occurs and completes within the space of 1 financial year may result in a distribution to creditors being possible without an assessment occurring ■■ does not address whether section 254 creates a priority in favour of the Commissioner. On appeal, the Court did not address the priority issue. Nonetheless, the appeal judgment confirmed the correctness of Justice Logan’s findings and arguably provided even greater clarity in relation to the operation of section 254. As detailed in our earlier Insight, while Justice Logan concluded that the obligation to retain funds sufficient to discharge a potential capital gains tax liability does not arise until a tax assessment is issued, he considered that a prudent practitioner may wish to retain those funds even though not legally required to do so. Such ‘prudence’ is fundamentally inconsistent with the clarity of his Honour’s findings. The appeal judgment avoids such inconsistent commentary. Section 254 continues to give rise to the potential that the Commissioner is entitled to a priority for unremitted capital gains tax. This issue will no doubt be the subject of future judicial review and determination. Henry Davis York’s Restructuring and Insolvency team Scott Atkins Jason Opperman 61 2 9947 6059 [email protected] 61 2 9947 6303 [email protected] Philip Crawford Greg Reinhardt 61 2 9947 6310 [email protected] 61 2 9947 6452 [email protected] Craig Ensor Claudine Salameh 61 2 9947 6445 [email protected] 61 2 9947 6489 [email protected] Mark Hilton Mark Schneider 61 2 9947 6305 [email protected] 61 7 3087 5004 [email protected] John Martin Sarah Worsfield 61 2 9947 6318 [email protected] 61 2 9947 6723 [email protected] Leonard McCarthy Mark Thomas 61 2 9947 6190 [email protected] 61 2 9947 6212 [email protected] Partner Partner Partner Partner Partner, Tax Partner Partner Partner Partner Partner Partner 44 Martin Place Sydney NSW 2000 Australia 61 2 9947 6000 Level 19 324 Queen Street Brisbane QLD 4000 Australia 61 7 3087 5000 Special Counsel
© Copyright 2024