A recent decision in the case of DCT v PM Developments Pty Ltd (PM Developments) has confirmed that while a company in liquidation is liable for GST payable on any taxable supply, a liquidator is not personally liable for GST incurred on post- appointment transactions.
In response the government has issued a statement that it intends to amend the GST legislation to make liquidators personally liable for GST on post- appointment transactions.
The decision
The relevant question decided in this case was:
The Commissioner of Taxation (the Commissioner) relied on s147 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) which sets out the requirements for representatives of incapacitated entities to register for GST. His Honour considered a number of submissions about the construction of the GST legislation as a whole and how s147 should be read.
His Honour weighed the clarity of s147 against the general position of liquidators, highlighting that in liquidation (unlike in bankruptcy) the property of the company never vests in the liquidator, and although control of the company changes, beneficial ownership of company assets remains with the company.
The Court found that s147 was insufficient to create a personal liability on the part of the liquidator as the requirement to register in s147 only brought the liquidator within one of four elements that cumulatively form a 'taxable supply' for GST purposes (s9-5), placing emphasis on the fact that to find otherwise would be counter intuitive to the general law of corporate insolvency.
The Court also found that the GST was a priority payment under s556(1)(a) of the Corporations Act, ranking equally with other post-liquidation debts, and as such a direction was made that the GST be paid proportionately (subject to liens) by the liquidator as there were insufficient funds to discharge all priority payments in full.
Proposed amendments to GST legislation
In response to the decision in PM Developments the Assistant Treasurer has recently issued a media release stating that "the Court's finding is contrary to the underlying policy intention and the way the law has been administered since the introduction of the GST".
The proposed amendments are to be retrospective in operation and will apply from the introduction of the GST Act on 1 July 2000. The amendments will apply to all 'representatives' of incapacitated entities, and are aimed at reversing the decision in PM Developments.
The definition of 'representative' as the GST Act currently stands includes the following: a trustee in bankruptcy, a liquidator, a receiver, a manager, an administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001, and an administrator of a deed of company arrangement executed by the entity.
Message to insolvency practitioners
If the proposed amendments are made, insolvency practitioners who fall within the definition of representatives will be personally liable for GST that is incurred post appointment, and rather than ranking as an equal post-liquidation debt, the Australian Taxation Office will be likely able to recover the whole of the GST payable on post appointment transactions from the representative. This will likely not come as a surprise to most practitioners.
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