Our insights - Henry Davis York

CGT liability for receivers and liquidators update

Spacer Panel

March 2014

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 [2014] 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.

Author

Scott Atkins

Partner

61 411 441 234

61 2 9947 6059

scott.atkins@hdy.com.au

Author

Philip Crawford

Consultant

61 417 646 300

61 2 9947 6310

philip.crawford@hdy.com.au

Author

Craig Ensor

Partner

61 425 320 419

61 2 9947 6445

craig.ensor@hdy.com.au

Author

Mark Hilton

Partner

61 409 372 610

61 2 9947 6305

mark.hilton@hdy.com.au

Author

John Martin

Partner

61 418 229 942

61 2 9947 6318

john.martin@hdy.com.au

Author

Greg Reinhardt

Partner

61 403 323 161

61 2 9947 6452

greg.reinhardt@hdy.com.au

Author

Claudine Salameh

Partner

61 402 451 770

61 2 9947 6489

claudine.salameh@hdy.com.au

Author

Mark Schneider

Partner

61 410 096 168

61 7 3087 5004

mark.schneider@hdy.com.au

Author

Mark Thomas

Special Counsel

61 2 9947 6212

mark.thomas@hdy.com.au

Other related insights