As many of our tax colleagues would appreciate Section 163 of the Income Tax Assessment Act provides that the Commissioner of Taxation may require any person to prepare and lodge outstanding tax returns.
Section 163 – Special Returns
Every person, whether a taxpayer or not, if required by the Commissioner, shall, in the approved form and within the time required by him, furnish any return required by the Commissioner for the purposes of this Act.
This section has ramifications for us as Liquidators as the Commissioner may require us to prepare and lodge outstanding tax returns for a company under our control.
In a perfect world this would not be a problem as the company’s records would be accurate and there would be sufficient funds available in the Liquidation to engage a tax accountant to prepare and lodge the returns. But this is rarely the case.
A majority of the companies we liquidate have inaccurate records (or they have been lost or destroyed due to the many floods and fires directors so often tell us about) and there are no funds available to engage a tax accountant to prepare the returns. Due to these reasons it is practically impossible for us to lodge an accurate return for most Liquidations and if forced to do so by the Commissioner would result in us lodging “best guess” returns based on the records available.
This problem has now been resolved through the efforts of the Insolvency Practitioners Association (IPA) – www.ipaa.com.au. The IPA has now reached an agreement with the Australian Taxation Office whereby the Commissioner will only require lodgment of any returns by a liquidator after having regard to the following factors:
- The prospect for, and likely size of, a dividend being paid to unsecured creditors;
- The likelihood that the return would, if lodged, reveal an increase in the tax liabilities owed to the Commissioner;
- The availability of books and records of the company taxpayer which would make it possible for the liquidator to prepare the returns;
- The likelihood that the liquidator’s cost of preparing those returns would be covered by the assets of the liquidated company without resulting in an inordinate adverse impact on returns to other creditors; and
- The wider community benefits of having the tax returns lodged.
It is good to see commercial sense prevail and ensure that liquidators will only be required to lodge tax returns of a company where a practical requirement exists. In reality this agreement will mean the requirement to lodge tax returns will not arise in most Liquidations.
Special thanks to Michael Murray IPA Legal Director