GST Liabilities of the Liquidator

There has been a development in the area of GST and liabilities arising where the Liquidator has sold company assets. The decision of the Federal Court in Deputy Commissioner of Taxation v PM Developments [2008] FCA 1886 held that a Liquidator is not personally liable for GST which is payable on company assets which have been realised in the administration. In that case, the company was in liquidation. It sold new residential premises by a Contract of Sale which was entered into and completed after the winding up order was made. The Court found that the sale of the property was a taxable supply by the company and that the Liquidator was not personally liable for the GST which was payable in relation to the sale.

The Court rejected the Commissioner's argument that the GST liability in relation to the sale should be attributed to the Liquidator in his or her capacity as Liquidator rather than to the company which was in liquidation. The GST on the sale of property by the Liquidator was simply an expense under section 556(1)(a) of the Corporations Act which was to be paid proportionately by the Liquidator pursuant to section 559. The Court determined that the GST should be treated as a post-liquidation debt and in circumstances where it was a revenue debt, this did not mean that any special priority should be given to the Commissioner.

However, as a result of the decision, the Government has indicated that it intends to change the GST law to reverse the impact of the decision. The rationale means that the Government intends to amend the GST law to ensure that representatives of insolvent entities are liable for GST on post appointment transactions. In proposing the amendments, it is intended that they will apply from the commencement of the introduction of GST (being 1 July 2000). The proposed amendments will also ensure that refunds are not available where the correct amount of GST has been paid in respect of transactions occurring during the period of the Liquidator's appointment.

There are some practical difficulties if the proposed amendments are introduced by the Government:

1. The proposed amendment would have the effect of giving the Commissioner a priority over other post-liquidation debts and that is against the policy of the Corporations Act.
2. The other concern is the retrospective nature of the proposed amendment as it is intended to operate with effect from 1 July 2000. This would cause substantial injustice where assets have been realised, dividends have been declared, cases finalised and in some instances, the company has already been deregistered. It is unreasonable to expect that administrations spanning a period of 8 years earlier could be enlivened by the retrospective nature of the legislation and therefore, imposing personal liability on Liquidators for cases which have already been finalised.

It will be interesting to see what outcome is derived concerning this issue in the future as there is certainly debate within the insolvency industry about the proposed amendments to the GST law.