Recently the Federal Court held that the liquidator of PM Developments Pty Ltd (PMD) was not liable for the GST payable on the sale of property pursuant to a contract made after the liquidator's appointment. This meant that the GST liability would be regarded (for distribution purposes) as any other unsecured debt and paid accordingly, which would often result in a short fall of GST paid to government.

Recent Case

PM Developments Pty Ltd (PMD) was ordered to be wound up. Mr John Greig (Deloittes) was appointed the sole liquidator of PMD.

Mr Greig, in his capacity as liquidator, sold a residential unit in the course of the liquidation. It was accepted that the supply was a taxable supply of new residential premises. The issue was whether the GST liability arising from the supply was that of PMD or the liquidator.

Decision Handed Down

The Federal Court held that the liquidator was not liable for the GST payable on the sale pursuant to a contract made after the liquidator's appointment, and that the liquidator had no liability for general interest charges in relation to the incapacitated company's GST liability. The case turned on the legal distinction that the assets of a company were not vested in the liquidator but were administered by the liquidator as agent. By inference, if the assets were vested (ie in a trustee in bankruptcy or mortgagee in possession) the representative of the incapacitated entity would be personally liable for GST.

Government's Response

The Assistant Treasurer issued a press release "GST and Incapacitated Entities" on 6 February 2009 announcing that the GST Act would be amended to ensure that liquidators (and other representatives of incapacitated entities) are personally liable for GST upon taxable supplies being made in the course of administering incapacitated entities. The government considers that the amendment is necessary to bring the GST Act in line with the intent of original policy.

The proposed amendments are to apply retrospectively from 1 July 2000.

The Australian Tax Office (ATO) in a "Decision Impact Statement" issued 9 February 2009 on PMD has reaffirmed the Treasury's announcement and has advised that any GST owing by representatives of incapacitated entities, as a result of the proposed changes to the GST Act, will be personally liable. The ATO has advised that penalties and GIC will not be payable provided the GST liability is satisfied before the 28th day after the amending Bill receives Royal Assent.

The ATO has asked for feedback on the proposed administrative approach.

Comment

Clearly, as the proposed changes to the GST Act will apply retrospectively, liquidators or other representatives of incapacitated entities may have an unfunded exposure to GST if they did not remit GST to the ATO for taxable supplies. It is our understanding that most liquidators have regarded GST as a personally liability, however, with the proposed changes it is clear that the ATO will have a greater focus on the winding up of incapacitated entities to check past compliance.

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