Decision impact statement

Deputy Commissioner of Taxation v PM Developments Pty Ltd

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Court Citation(s):
[2008] FCA 1886
2008 ATC 20-078
70 ATR 741
(2008) 173 FCR 247

Venue: Federal Court of Australia
Venue Reference No: QUD 159 of 2007
Judge Name: Logan J
Judgment date: 12 December 2008
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• None

Subject References:
GST
Division 147
liquidator
personal liability
priorities

Précis

Outlines the Tax Office's response to this case which concerned whether a liquidator is personally liable for GST on a taxable supply made in the course of the liquidation and the priority of GST incurred in the course of the liquidation.

Brief summary of facts

•

PM Developments Pty Ltd was the developer of a new residential unit project.

•

After the making of an order for its winding up, the liquidator of the company entered into and completed a contract for the sale of a unit.

•

The liquidator sought a declaration that the liquidator was not personally liable for GST on the sale of the unit.

Issues decided by the court or tribunal

The Court decided that:

•

Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST.

•

The liability for GST on the supply rests with the company in liquidation.

•

The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001. (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.)

•

The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559.

Tax Office view of Decision

Current legislation

Division 147 of the GST Act contains special rules relating to 'representatives' of 'incapacitated entities'. The term 'incapacitated entity' includes bankrupts and companies in liquidation or receivership. The term 'representative' includes trustees in bankruptcy, liquidators and receivers.

The Tax Office considers the effect of the decision in this case, in respect of Division 147 as currently enacted, to be as follows (this paragraph is a public indirect tax ruling for the purposes of section 105-60 of the Taxation Administration Act 1953):

•

Where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST. The Tax Office understands that, other than in the uncommon case where assets of the company are vested in the liquidator, under the general law, a liquidator acts as agent of the company in realising the assets of the company, and that under the terms of their appointment receivers also commonly act as agent of the company in receivership.

•

Similarly, where a representative of an incapacitated entity makes an acquisition as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the incapacitated entity and not the representative that is entitled to the input tax credit.

•

Where an asset of an incapacitated entity is vested in the representative and the representative makes a supply of the asset (for example, where a trustee in bankruptcy makes a supply of an asset of the bankrupt estate) and the supply is a taxable supply - it is the representative that has the liability for GST;

•

Similarly, where a representative of an incapacitated entity, such as a trustee in bankruptcy, makes an acquisition in its own right and not as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the representative and not the incapacitated entity that is entitled to the input tax credit.

Section 70-25 of the Fuel Tax Act 2006 (Fuel Tax Act) provides that the fuel tax law applies to an incapacitated entity and its representative in the same way as the GST Act applies to them under Division 147 of the GST Act. Following its appointment, a representative of an incapacitated entity may acquire, manufacture or import into Australia taxable fuel in circumstances which give rise to an entitlement to a fuel tax credit under the Fuel Tax Act. However, under section 41-15 of the Act, a taxpayer is not entitled to a fuel tax credit for taxable fuel if it is reasonable to conclude that another taxpayer is entitled to a fuel tax credit for the same fuel.

The Tax Office considers the effect of the decision in PM Developments, in respect of the interaction between the Fuel Tax Act and Division 147 of the GST Act as currently enacted, to be as follows:

•

Where a representative of an incapacitated entity, such as a liquidator or receiver, acquires, manufactures or imports into Australia taxable fuel as agent for the incapacitated entity, in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the incapacitated entity and not the representative that is entitled to the fuel tax credit. For the purposes of section 41-15 of the Fuel Tax Act, the representative is not taken to have been entitled to the fuel tax credit for the fuel.

•

Where a representative of an incapacitated entity, such as a trustee in bankruptcy, acquires, manufactures or imports into Australia taxable fuel in its own right in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the representative and not the incapacitated entity that is entitled to the fuel tax credit for the fuel. For the purposes of section 41-15, the incapacitated entity is not taken to have been entitled to the fuel tax credit for the fuel.

Proposed amendments

However, it is noted that the Assistant Treasurer issued a press release "GST and Incapacitated Entities" (see link below) on 6 February 2009 announcing that the GST Act would be amended to restore the original policy intent that representatives of incapacitated entities, including liquidators and receivers, be personally liable for GST on taxable supplies made in the course of the administration of the incapacitated entity's affairs.

The press release indicates that the amendments, when enacted, will take effect from the commencement of the GST, that is, 1 July 2000.

Administrative Treatment

Implications on current Public Rulings & Determinations

Liabilities arising before proposed amendments become law

In respect of GST payable in the period pending passage and assent to the proposed amendments, the Tax Office accepts that the liability for GST on transactions entered into by a representative of an incapacitated entity as agent for the incapacitated entity is satisfied if the liability is paid by or on behalf of the incapacitated entity. The representative is not liable for the GST under the current law.

Administrative response

Subject to the terms of the legislation, if legislation retrospectively imposing GST on transactions entered into by a representative of an incapacitated entity as agent for the incapacitated entity becomes law, the Tax Office will accept that the GST liability is satisfied where:

•

the correct amount of GST has been paid by the representative on behalf of the incapacitated entity in the period pending Royal Assent; and

•

the representative on behalf of the incapacitated entity authorises the Tax Office to treat the amount as paid on behalf of the representative;

•

and no claim for the amount paid is made against the Tax Office,

without further action by the representative.

The Tax Office would welcome feedback in relation to this approach and any other issues. Please direct any comments to: Marc Smith at marc.smith@ato.gov.au or on ph: (08) 9268 8174 or 0477 226 760.

Penalties and interest

In respect of penalties and interest, s 105-85 of Schedule 1 to the Taxation Administration Act 1953 provides that an Act that amends the GST Act does not have the effect of imposing a penalty or general interest charge (GIC) for any act or omission that occurs before the 28th day after the amending Act receives the Royal Assent.

Accordingly, although it is intended that the proposed amendments will have retrospective effect, liquidators, receivers or other representatives of incapacitated entities will not be liable for penalties or GIC if they do not personally bring to account GST on transactions in which they act as agent for an incapacitated entity in the period before the 28th day after the amendment becomes law. If the proposed retrospective amendment is introduced and passed by Parliament, penalties and GIC will not apply if the GST is paid before the 28th day after the amending Bill receives the Royal Assent.

Refunds of GST

The Tax Office has been notified that some representatives may make claims for refunds of GST paid by representatives in respect of transactions in which the representative acted as agent for the incapacitated entity.

Pending any amendments becoming law, the Tax Office will process any claims for refunds in accordance with its usual processes. The following guidance is provided regarding the Tax Office approach to any refund claims that might be made in this period.

The Tax Office considers that an overpayment may have occurred, and therefore a potential refund entitlement may arise, in cases where the payment was in fact made by the representative personally and not on behalf of the incapacitated entity for which it acted as agent in the relevant transaction.

Practitioners contemplating applying for refunds in these circumstances will need to consider whether they can demonstrate that the payment was made by the representative personally. If payment by the representative personally is not demonstrated, a refund will not be paid.

Any entitlement to a refund will also be subject to relevant provisions of the Taxation Administration Act 1953. In particular, the Tax Office considers that s 105-65 of Schedule 1 to that Act would apply in these circumstances.

The Tax Office therefore would not refund an amount paid by a representative personally where the representative, in accordance with its duties as representative, would have been required to make the payment on behalf of the incapacitated entity in any case and the conditions for the operation of s 105-65 are satisfied, namely:

(a)

the Tax Office is not satisfied that the representative has personally reimbursed a corresponding amount to the recipient of the relevant supply; or

(b)

the recipient of the supply is registered or required to be registered for GST purposes.

Any refund claims received in this period will be considered on their merits having regard to these principles. If representatives consider that in their particular circumstances refunds should be paid even though the conditions for the operation of s 105-65 apply, full details of the basis of the overpayment and the reasons that it is considered that the refund should be paid should be provided to the Tax Office.

Implications on Law Administration Practice Statements

None

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
9-5
Division 147

Corporations Act 2001
556(1)(a)
559

Fuel Tax Act 2006
41-15
70-25

Case References:
Commissioner of Taxation v Futuris Pty Ltd
(2008) 82 ALJR 1177
[2008] HCA 32
2008 ATC 20-039
(2008) 69 ATR 41

Commissioner of Taxation v Linter Textiles Australia Limited (In liquidation)
(2005) 220 CLR 592
(2005) 2005 ATC 4255
(2005) 59 ATR 177

Commissioner of Taxation v Reliance Carpet Co Pty Ltd
(2008) 82 ALJR 968
(2008) 2008 ATC 20-028
(2008) 68 ATR 158

Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation
(1980-1981) 147 CLR 297
(1981) 81 ATC 4292
(1981) 11 ATR 949

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd
(2008) 82 ALJR 1411
(2008) 2008 ATC 20-045
(2008) 69 ATR 357

Director of Public Prosecutions (Victoria) v Le
(2007) 232 CLR 562
[2007] HCA 52

Hepples v Commissioner of Taxation
(1991-1992) 173 CLR 492
(1992) 22 ATR 852
92 ATC 4013

Oil Basins Ltd v Commonwealth of Australia
(1993) 178 CLR 643
(1993) 26 ATR 603
93 ATC 4947

Muroa Pty Ltd v O'Meara
(1997) 15 ACLC 1427

Platypus Leasing Inc v Commissioner of Taxation
(2005) 61 ATR 239
[2005] NSWCA 399

Project Blue Sky Inc v Australian Broadcasting Authority
(1998) 194 CLR 355
[1998] HCA 28
(1998) 153 ALR 490

Re Application by the Liquidator of Haupiri Courts Ltd
[1969] NZLR 348

Re Bolton; ex parte Beane
(1987) 162 CLR 514
[1987] HCA 12

Re Judiciary and Navigation Acts
(1921) 29 CLR 257
[1921] HCA 20
(1921) 27 ALR 193

Case W59
(2004) 21 NZTC 11,551

Other References:
GST and Incapacitated Entities (Media Release No. 5)