Court Decisions
Liquidator’s liability for GST
12.12.2008
In what appears to be a test case, the Federal Court (Logan J) has held that a liquidator of a corporation is not personally liable for GST in respect of the sale of new residential premises owned by the corporation pursuant to a contract for the sale of the premises entered into and completed after the making of the winding up order (DFCT v PM Developments Pty Ltd [2008] FCA 1886).
Logan J concluded that, as the GSTA presently stands, the effect of requiring a liquidator of a corporation to register is that any supplies which the liquidator makes in that “representative” capacity in the event that any property of the corporation is ordered to be vested in him will become a “taxable supply” by him in that capacity; otherwise the disposal of the property of a corporation, insofar as that constitutes a supply for the purposes of the GSTA, will remain a taxable supply by the corporation and have to be accounted for and paid by it accordingly.
The decision highlights the difficulties of construction and application that can be inherent in provisions which are drafted in a broad brush way without due attention to detail and legal principles. For example, in considering the operation of two competing provisions (sec 27-40 and 147-25 GSTA), Logan J had this to say:
“Section 147-25(1) makes the tax period of a representative the same as that of the incapacitated entity. Tax periods are important in terms of the accounting for and payment of GST because it is the ‘net amount’ (GST less input tax credits) as ascertained for a given tax period which must, as the case may be, either paid to the Commissioner or refunded or credited by him: s 17-5 and Div 33 of the GST Act.
One reading of the statement in s 147-25(1) that a representative’s tax periods are to be the same as those of the incapacitated entity is that it assumes that the incapacitated entity will continue to have tax periods after, materially, going into liquidation. Paragraph 27-40(1)(b) provides to the contrary but s 147-25(2) provides that s 147-25 has effect despite, that is to the exclusion of, Division 27, which includes s 27-40. Another reading of s 147-25 is that it is meant to complement a provision which deems a representative to carry on an incapacitated person’s enterprise and to make its supplies and acquisitions even though that representative may not do this under the general law. The difficulty is that there is no such provision in Division 147.
Section 27-40 of the GST Act is also fraught with internal contradictions of its own. On the one hand, materially, it provides that going into liquidation concludes an entity’s tax period while on the other it provides that, where an entity carries on an enterprise, its tax period does not end until the day on which cessation of the enterprise occurs. Where the business of a company in liquidation is carried on for a time so as best to effect an orderly realisation of assets, that business will necessarily survive beyond the date when a winding up order is made. Dispensing with these contradictions makes construing s 147-25(1) such that a representative’s tax periods are the same as those of the incapacitated entity on the basis that the incapacitated entity will continue to have tax periods after, materially, going into liquidation attractive.”
