Decision on whether receivers and liquidators must withhold tax in absence of an assessment

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By Garry Hamilton, David O’Farrell and Craig Bowie

Justice Logan of the Federal Court has handed down the much anticipated decision in Australian Building Systems Pty Ltd v Commissioner of Taxation [2014] FCA 116.

The decision has significant practical implications for liquidators and receivers (and their appointors). This relates to the question of whether, in the absence of an assessment, they have an obligation pursuant to section 254 of the Income Tax Assessment Act 1936 (Cth) (ITAA36) to retain sufficient money to pay tax that may become due to the commissioner as a result of the activities of the liquidator or receiver.

The court held that, in the absence of an assessment, a liquidator has no such obligation to account to the commissioner (or retain sufficient amounts), out of the proceeds of sale, for any tax that may be payable as a result of a capital gain that arises on the sale of a company asset. The effect is that a liquidator is not personally liable in the event that, once the assessment issues, there are insufficient funds to meet the capital gains tax liability (or other tax liabilities arising due to the activities before the assessment issues). The same would apply to a receiver…

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