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

Last Updated: 16 December 2015
Article by Tim L'Estrange

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.


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 under the Act to retain, out of the proceeds of sale, money sufficient to cover any capital gains tax liability from the time that the capital gain crystallized or only when a tax assessment had issued.

Section 254 of the Act provides "with respect to every agent and with respect ... to every trustee" that he or she is:

  • answerable, as tax payer, for the payment of tax on any income, profits or gains of a capital nature derived in his or her representative capacity;
  • authorized and required "to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains"; and
  • personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he or she has retained or should have retained.

The term "trustee" is defined under the Act to include administrators, receivers and liquidators.

The Commissioner ruled that section 254 of the Act required the liquidators to retain money for tax purposes from the time of the crystallization of the capital gain and that the liquidators were required to account to the Commissioner for that liability out of the proceeds of sale.

The liquidators objected to the ruling and pursued the matter through the Federal Courts of Australia. Both the trial judge at first instance and the Full Court on appeal determined that section 254 did not impose any obligation on liquidators to retain money from the proceeds of sale of ABS's land unless and until a tax assessment had issued. However, the trial judge noted that a prudent liquidator would be entitled to retain the income, profit or gain until the tax position in respect of the relevant tax year becomes certain. No authority was cited for this proposition, and the Full Court did not comment or express any position on it.

The Competing Arguments

The Commissioner argued that the language "tax which is or will become due" in section 254 is broad enough to include a tax which will be assessed in the future. For the Commissioner, construing the retention authorization and obligation as arising only upon assessment would leave trust or agency receipts liable to being depleted prior to assessment and diminish the extent of the potential personal liability of the agent or trustee to satisfy the tax.

In response, ABS argued that a tax which "will become due" is one that has been assessed and which is not yet due for payment. In support of this, ABS asserted that section 254 of the Act imposes a personal liability on the agent or trustee which is limited by the clause "to pay tax which is or will become due", and that this imposition is conditioned upon certainty as to the amount of tax due. Such certainty, ABS argued, could arise only upon assessment.

The Decision

Three members of the High Court bench (French CJ, Kiefel J and Gageler J) determined that section 254 does not authorize or require a liquidator to retain any money for tax purposes unless an assessment has issued. Justice Gageler noted that this interpretation minimizes the potential for disharmony between the obligations and liabilities of liquidators under section 254 of the Act and the obligations of liquidators and rights of creditors under Ch 5 of the Corporations Act 2001 (Cth).

In dissent, Gordon and Keane JJ disagreed and determined that a tax which will become due includes a tax which has not yet been, but will be, assessed.


A possible consequence of the High Court's decision is that liquidators who retain money for the purpose of satisfying a potential tax liability prior to the issuance of an assessment have exceeded the authority provided under section 254. A question arises: Are liquidators otherwise authorized to retain money from income, profits or gains for the purposes of satisfying a potential tax liability prior to the issuance of an assessment and, if not, what are the consequences of liquidators doing so?

Under general law, a trustee is entitled to retain trust property against a beneficiary pending determination of contingent liabilities of the trust for which the trustee is liable.1 However, a liquidator cannot be described as a "trustee" under general law.

In her dissenting judgment, Gordon J reasoned that a tax expense incurred by a liquidator may fall within section 556(1)(a) of the Corporations Act 2001 (Cth), being a winding-up expense incurred in preserving, realizing or marshalling property of the company, or in carrying on the company's business. Such an expense must be paid in priority to all other unsecured debts and claims. However, this does not address whether a pre-assessed tax is a tax expense "incurred" and does not provide an answer for situations where secured property is sold by a liquidator.

In the face of uncertainty, liquidators and other insolvency practitioners may need to seek the direction of the Court on these questions in appropriate cases.


1 Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 335-336; [1945] HCA 37; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; [1979] HCA 61; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 245-247 [47]-[51]; [1998] HCA 4.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.