Australian High Court Finds Liquidators Are Not Required To Set Aside Money For Pre-Assessed Tax Liabilities

Key Points

Under the Income Tax Assessment Act 1936 (the "Act"), Australian liquidators are authorized and required to retain money which comes to them in their representative capacity that is sufficient to pay tax which is or will become due in respect of the income, profits or gains of the company. In Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation); Commissioner of Taxation v Muller and Dunn as Liquidators of Australian Building Systems Pty Ltd (In Liquidation) [2015] HCA 48, the High Court of Australia determined that the retention authorization and obligation does not arise upon the crystallization of a tax event but only upon the making of an assessment or deemed assessment in respect of the income, profits or gains. The High Court of Australia did not address the question of whether liquidators and other insolvency practitioners are otherwise authorized to retain money for the purposes of satisfying potential tax liabilities prior to the issuance of an assessment. The High Court's decision also leaves open the question of what consequences may flow to insolvency practitioners who have retained money for pre-assessed potential tax liabilities in the absence of authority. Background

The liquidators of Australian Building Systems Pty Ltd ("ABS") caused ABS to enter into a contract for the sale of real property, which gave rise to a capital gain tax event. The liquidators sought a private ruling from the Commissioner of Tax on the question of whether they had an obligation...