According to the decision in Australian Building Solutions Pty Limited v Commissioner of Taxation  FCA 16, liquidators selling company assets are not personally liable for the resulting Capital Gains Tax (CGT) liabilities without a prior assessment. This is in direct contrast to the position previously taken by the Commissioner in a draft private ruling.
The confusion over personal liability for liquidators is a result of contradictory positions adopted by legislation, namely:
- Income Tax Administration Act, 1936: section 254 holds a trustee (a defined term that includes liquidators and receivers) personally liable for taxation obligations for capital gains resulting from sale of assets by the liquidator.
- Corporations Act, 2001: which provides protection to liquidators against personal liability for company debts while properly carrying out their statutory obligations.
The decision by Logan J sets aside the private ruling. However, liquidators cannot breathe a sigh of relief just yet; the Commissioner has until 21 March 2014 to lodge an appeal.
The decision did not address the issue of priority. Any liquidator will tell you that the circumstances that resulted in the capital gain materially occurred prior to commencement of the liquidation and should therefore be subject to the priorities of Section 556 of the Corporations Act. This would see the CGT debt treated as an ordinary unsecured debt of the company and the Commissioner would be afforded no priority over the other creditors of the company.
This position is inconsistent with Section 254 of the Income Tax Administration Act, which would have practitioners retain sufficient funds to pay the tax debt, effectively providing the Commissioner with priority over all other claims in the liquidation.
What’s a liquidator to do? We suspect that the Commissioner will soon issue an assessment to the liquidator of Australian Building Solutions and seek to enforce his priority. In this case, we hope that the Court will be asked to consider the issue of priority and remove the ambiguity surrounding this issue.