Deputy Commissioner of Taxation v PM Developments Pty Ltd
Document type: Decision Impact Statement
Venue: Federal Court of Australia (QUD 159 of 2007)
Judgment date: 12 December 2008
Date published: 13 July 2011

Summary of decision:
Outlines the Tax Office's response to this case which concerned whether a liquidator is personally liable for GST on a taxable supply made in the course of the liquidation and the priority of GST incurred in the course of the liquidation.

Overview of facts:
• PM Developments Pty Ltd was the developer of a new residential unit project. • After the making of an order for its winding up, the liquidator of the company entered into and completed a contract for the sale of a unit. • The liquidator sought a declaration that the liquidator was not personally liable for GST on the sale of the unit. | • PM Developments Pty Ltd was the developer of a new residential unit project. • After the making of an order for its winding up, the liquidator of the company entered into and completed a contract for the sale of a unit. • The liquidator sought a declaration that the liquidator was not personally liable for GST on the sale of the unit. | Issues decided by the court or tribunal | The Court decided that: • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559. | • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559.

Issues decided:
The Court decided that: • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559. • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559.

ATO view of decision:
The GST Act has been amended since the decision. See below under 'Legislative Amendments'. The discussion below under 'Legislation as it was for this case' is of the Tax Office view of the decision in regard to the legislation as it was before it was amended. Note that the amendments apply from 1 July 2000. | Legislation as it was for this case | Division 147 of the GST Act contained special rules relating to 'representatives' of 'incapacitated entities'. The term 'incapacitated entity' includes bankrupts and companies in liquidation or receivership. The term 'representative' includes trustees in bankruptcy, liquidators and receivers. | The Tax Office considers the effect of the decision in this case, in respect of the then Division 147, to be as follows: • Where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST. The Tax Office understands that, other than in the uncommon case where assets of the company are vested in the liquidator, under the general law, a liquidator acts as agent of the company in realising the assets of the company, and that under the terms of their appointment receivers also commonly act as agent of the company in receivership. • Similarly, where a representative of an incapacitated entity makes an acquisition as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the incapacitated entity and not the representative that is entitled to the input tax credit. • Where an asset of an incapacitated entity is vested in the representative and the representative makes a supply of the asset (for example, where a trustee in bankruptcy makes a supply of an asset of the bankrupt estate) and the supply is a taxable supply - it is the representative that has the liability for GST; • Similarly, where a representative of an incapacitated entity, such as a trustee in bankruptcy, makes an acquisition in its own right and not as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the representative and not the incapacitated entity that is entitled to the input tax credit. | • Where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST. The Tax Office understands that, other than in the uncommon case where assets of the company are vested in the liquidator, under the general law, a liquidator acts as agent of the company in realising the assets of the company, and that under the terms of their appointment receivers also commonly act as agent of the company in receivership. • Similarly, where a representative of an incapacitated entity makes an acquisition as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the incapacitated entity and not the representative that is entitled to the input tax credit. • Where an asset of an incapacitated entity is vested in the representative and the representative makes a supply of the asset (for example, where a trustee in bankruptcy makes a supply of an asset of the bankrupt estate) and the supply is a taxable supply - it is the representative that has the liability for GST; • Similarly, where a representative of an incapacitated entity, such as a trustee in bankruptcy, makes an acquisition in its own right and not as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the representative and not the incapacitated entity that is entitled to the input tax credit. | Section 70-25 of the Fuel Tax Act 2006 (Fuel Tax Act) provided that the fuel tax law applies to an incapacitated entity and its representative in the same way as the GST Act applies to them under Division 147 of the GST Act. Following its appointment, a representative of an incapacitated entity may acquire, manufacture or import into Australia taxable fuel in circumstances which give rise to an entitlement to a fuel tax credit under the Fuel Tax Act. However, under section 41-15 of the Act, a taxpayer is not entitled to a fuel tax credit for taxable fuel if it is reasonable to conclude that another taxpayer is entitled to a fuel tax credit for the same fuel. | The Tax Office considers the effect of the decision in PM Developments, in respect of the interaction between the Fuel Tax Act and the then Division 147 of the GST Act to be as follows: • Where a representative of an incapacitated entity, such as a liquidator or receiver, acquires, manufactures or imports into Australia taxable fuel as agent for the incapacitated entity, in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the incapacitated entity and not the representative that is entitled to the fuel tax credit. For the purposes of section 41-15 of the Fuel Tax Act, the representative is not taken to have been entitled to the fuel tax credit for the fuel. • Where a representative of an incapacitated entity, such as a trustee in bankruptcy, acquires, manufactures or imports into Australia taxable fuel in its own right in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the representative and not the incapacitated entity that is entitled to the fuel tax credit for the fuel. For the purposes of section 41-15, the incapacitated entity is not taken to have been entitled to the fuel tax credit for the fuel. | • Where a representative of an incapacitated entity, such as a liquidator or receiver, acquires, manufactures or imports into Australia taxable fuel as agent for the incapacitated entity, in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the incapacitated entity and not the representative that is entitled to the fuel tax credit. For the purposes of section 41-15 of the Fuel Tax Act, the representative is not taken to have been entitled to the fuel tax credit for the fuel. • Where a representative of an incapacitated entity, such as a trustee in bankruptcy, acquires, manufactures or imports into Australia taxable fuel in its own right in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the representative and not the incapacitated entity that is entitled to the fuel tax credit for the fuel. For the purposes of section 41-15, the incapacitated entity is not taken to have been entitled to the fuel tax credit for the fuel. | Legislative amendments | The Assistant Treasurer issued a press release "GST and Incapacitated Entities" (see link below) on 6 February 2009 announcing that the GST Act would be amended to restore the original policy intent that representatives of incapacitated entities, including liquidators and receivers, be personally liable for GST on taxable supplies made in the course of the administration of the incapacitated entity's affairs. | The press release indicated that the amendments, when enacted, will take effect from the commencement of the GST, that is, 1 July 2000. | Legislative amendments in line with that press release received Royal Assent on 4 December 2009 with a commencement date of 1 July 2000. The amendments omitted Division 147 of the GST Act and inserted Division 58 setting out detailed rules dealing with representatives of incapacitated entities.

Administrative treatment:
Implications on current Public Rulings & Determinations | None | Implications on Law Administration Practice Statement | None

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 9-5 Division 147 Corporations Act 2001 556(1)(a) 559 Fuel Tax Act 2006 41-15 70-25
Case references: Commissioner of Taxation v Futuris Pty Ltd (2008) 82 ALJR 1177 [2008] HCA 32 2008 ATC 20-039 (2008) 69 ATR 41 Commissioner of Taxation v Linter Textiles Australia Limited (In liquidation) (2005) 220 CLR 592 (2005) 2005 ATC 4255 (2005) 59 ATR 177 Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 82 ALJR 968 (2008) 2008 ATC 20-028 (2008) 68 ATR 158 Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1980-1981) 147 CLR 297 (1981) 81 ATC 4292 (1981) 11 ATR 949 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 82 ALJR 1411 (2008) 2008 ATC 20-045 (2008) 69 ATR 357 Director of Public Prosecutions (Victoria) v Le (2007) 232 CLR 562 [2007] HCA 52 Hepples v Commissioner of Taxation (1991-1992) 173 CLR 492 (1992) 22 ATR 852 92 ATC 4013 Oil Basins Ltd v Commonwealth of Australia (1993) 178 CLR 643 (1993) 26 ATR 603 93 ATC 4947 Muroa Pty Ltd v O'Meara (1997) 15 ACLC 1427 Platypus Leasing Inc v Commissioner of Taxation (2005) 61 ATR 239 [2005] NSWCA 399 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 (1998) 153 ALR 490 Re Application by the Liquidator of Haupiri Courts Ltd [1969] NZLR 348 Re Bolton; ex parte Beane (1987) 162 CLR 514 [1987] HCA 12 Re Judiciary and Navigation Acts (1921) 29 CLR 257 [1921] HCA 20 (1921) 27 ALR 193 Case W59 (2004) 21 NZTC 11,551
Subject references: GST Division 147 liquidator personal liability priorities
Other references: GST and Incapacitated Entities (Media Release No. 5)