CGT liability for receivers and liquidators update
The appeal of a recent Federal Court decision means that the operation of section 254 of the Income Tax
Assessment Act 1936 (Cth) remains uncertain. To avoid personal liability, liquidators and receivers would be wise to retain proceeds from the sale of assets that generate a capital gain until they receive a tax assessment.
The income tax treatment of liquidators and receivers has been the subject of much contention. In Australian Building Systems Pty Ltd v Commissioner of Taxation  FCA 116, Justice Logan of the Federal Court of Australia found that liquidators are not obliged to retain funds pursuant to section 254 until they receive a tax assessment from the ATO. The decision is considered in our Insight “CGT liability for receivers and liquidators”.
The Commissioner of Taxation lodged an appeal on 13 March 2014.
Appeal lodged - implication for liquidators and receivers
From an administrative perspective, the judgment is problematic in that it:
1. renders section 254 ineffective if the section is intended to operate as a mechanism for the Commissioner to collect tax revenue from an insolvent entity
2. creates very different outcomes for creditors depending on the timing of when insolvency proceedings start. An insolvency that spans 2 separate financial years may result in an assessment being issued by the Commissioner that results in the funds available for distribution being diminished. On the other hand, an insolvency that occurs and completes within the space of 1 financial year may result in a distribution to creditors being possible without an assessment occurring.
Pending a determination of the appeal, liquidators and receivers would be wise to hold onto proceeds from the sale of assets that attract capital gains tax until they receive a tax assessment.