Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) Commissioner of Taxation v Ginette Dawn Muller and Joanne Emily Dunn as Liquidators of Australian Building Systems Pty Ltd
Document type: Decision Impact Statement
Venue: High Court (B19/2015; B20/2015)
Judgment date: 10 December 2015
Date published: 23 March 2016

Summary of decision:
The High Court considered the point where a trustee or agent comes under the retention obligation in paragraph 254(1)(d) of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of income, profits or gains (IPG) derived by them in their representative capacity.

Overview of facts:
In the course of winding up Australian Building Systems Pty Ltd (ABS), the liquidators arranged for the sale of property which gave rise to a capital gain. | The liquidators applied for a private ruling as follows: • whether section 254 of ITAA 1936 obliges the liquidators 'to account' to the Commissioner for any capital gains tax liability out of the proceeds of sale of an asset; and • if so, whether the liquidators are obliged to retain a sufficient amount to pay the tax liability when the capital gain crystallises or only when an assessment is made. | • whether section 254 of ITAA 1936 obliges the liquidators 'to account' to the Commissioner for any capital gains tax liability out of the proceeds of sale of an asset; and • if so, whether the liquidators are obliged to retain a sufficient amount to pay the tax liability when the capital gain crystallises or only when an assessment is made. | The Commissioner ruled that the liquidator's obligation 'to account' out of the sale proceeds of the asset arose when the capital gain was crystallised and not when an assessment was issued. | The liquidators also made an application to the Federal Court for declarations that the liquidators are not required 'to account to the Commissioner' under section 254 of the ITAA 1936 but rather distribute such amounts that the Commissioner would receive in the ordinary course of the liquidation in accordance with section 556 and section 501 of the Corporations Act 2001. | Issues decided by the court | 1. Whether a trustee, within the meaning of section 6 of the ITAA 1936 (including a liquidator) is subject to the requirements of section 254 of the ITAA 1936 only in relation to IPG for which the trustee is assessable to tax under Part III, Division 6 of the ITAA 1936? | 2. Whether a 'trustee' or 'agent' within the meaning of section 6 of the ITAA 1936 is subject to the obligations in section 254 of the ITAA 1936 only in relation to IPG for which they are assessable under some other provision of the revenue law or whether section 254 of the ITAA 1936 creates by its own force an ancillary or secondary liability in relation to the IPG derived by the trustee or agent? | 3. Whether, following the derivation of IPG but prior to an assessment for tax being made in respect of the IPG, paragraph 254(1)(d) of the ITAA 1936 requires and authorises the agent or trustee to retain money in their hands sufficient to pay any tax on the IPG? | The first two issues were not contested by the taxpayer. The High Court held unanimously that the decision of Edmonds and Collier JJ in the Full Federal Court in relation to these issues was incorrect: • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. | • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. | In relation to issue (3), the High Court (in a 3-2 split) found against the Commissioner: a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG. | a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG.

Issues decided:
1. Whether a trustee, within the meaning of section 6 of the ITAA 1936 (including a liquidator) is subject to the requirements of section 254 of the ITAA 1936 only in relation to IPG for which the trustee is assessable to tax under Part III, Division 6 of the ITAA 1936? 2. Whether a 'trustee' or 'agent' within the meaning of section 6 of the ITAA 1936 is subject to the obligations in section 254 of the ITAA 1936 only in relation to IPG for which they are assessable under some other provision of the revenue law or whether section 254 of the ITAA 1936 creates by its own force an ancillary or secondary liability in relation to the IPG derived by the trustee or agent? 3. Whether, following the derivation of IPG but prior to an assessment for tax being made in respect of the IPG, paragraph 254(1)(d) of the ITAA 1936 requires and authorises the agent or trustee to retain money in their hands sufficient to pay any tax on the IPG? The first two issues were not contested by the taxpayer. The High Court held unanimously that the decision of Edmonds and Collier JJ in the Full Federal Court in relation to these issues was incorrect: • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. In relation to issue (3), the High Court (in a 3-2 split) found against the Commissioner: a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG. a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG.

ATO view of decision:
The Commissioner accepts that a trustee or agent has no obligation to retain monies under paragraph 254(1)(d) of the ITAA 1936 until an assessment has first issued in respect of the IPG. | The decision reflects the Commissioner's view that section 254 of the ITAA 1936 does not require the trustee to be assessable to tax under Part III, Division 6 of the ITAA 1936 in order for the retention obligation to be imposed. | The decision also reflects the Commissioner's view that section 254 of the ITAA 1936 is both an assessing and a collection provision. | The Commissioner agrees with the obiter comments made by Gordon J at [207] concerning the operation of section 556 of the Corporations Law, and will act accordingly.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Draft TD 2012/D6 and Draft TD 2012/D7. | The High Court's decision in favour of the liquidator is inconsistent with the views set out in Draft TD 2012/D6 and Draft TD 2012/D7. Consequently, the Commissioner has withdrawn these draft taxation determinations following the High Court's decision. TD 2012/D6 has been withdrawn without replacement because the Commissioner accepts that a trustee or agent has no obligation to retain monies under paragraph 254(1)(d) of the ITAA 1936 until an assessment has been issued in respect of the IPG. The Commissioner's view on the issues covered by TD 2012/D7 is currently being considered in light of the High Court decision. The Commissioner will look to provide a replacement public advice product for TD 2012/D7 or to test the Commissioner's view in an appropriate case. | Implications for impacted Law Administration Practice Statements | None.

Legislative references: Income Tax Assessment Act 1936 Section 254 Section 255 Part III Division 6 Income Tax Assessment Act 1997 Section 5-5 Section 104-10 Corporations Act 2001 Section 501 Section 556
Case references: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 (2009) 239 CLR 27 2009 ATC 20-134 73 ATR 256 Anderson's Industries Ltd v Federal Commissioner of Taxation (1932) 47 CLR 354 [1932] HCA 6 Australian Building Systems Pty Ltd (ACN 094 238 678) (in liq) v Commissioner of Taxation [2014] FCA 116 (2014) 2014 ATC 20-444 (2014) 97 ACSR 614 Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2006) 64 ATR 524 [2006] FCA 1493 Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 (1963) 13 ATD 202 9 AITR 207 Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 [2007] HCA 54 (2007) 67 ATR 1 2007 ATC 5302 Brooke v Inland Revenue Commissioners [1917] KB 61 Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2009) 239 CLR 346 (2009) 72 ATR 856 2009 ATC 20-125 Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 (1998) 72 ALJR 243 (1998) 37 ATR 393 (1998) 151 ALR 1 98 ATC 4097 [1998] HCA 4 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 [1981] HCA 40 (1981) 12 ATR 173 81 ATC 4429 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd [1931] HCA 53 (1931) 46 CLR 41 (1931) 5 ALJ 355 (1931) 38 ALR 73 Deputy Commissioner of Taxation v Barkworth Olives Management Ltd [2011] 1 Qd R 326 2010 ATC 20-172 (2010) 78 ATR 827 Deputy Federal Commissioner of Taxation v Brown (1958) 100 CLR 32 (1958) 11 ATD 374 7 AITR 198 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 16 (1995) 29 ATR 644 95 ATC 4067 Drummond v Collins [1915] AC 1011 Federal Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) (2014) 226 FCR 263 2014 ATC 20-468 Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 (2010) 75 ATR 1 2010 ATC 20-170 Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472 (2008) 70 ATR 903 2008 ATC 20-073 Federal Commissioner of Taxation v Linter Textiles Australia Ltd (In liq) (2005) 220 CLR 592 [2005] HCA 20 2005 ATC 4255 (2005) 59 ATR 177 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 (1994) 28 ATR 336 94 ATC 4570 Federal Commissioner of Taxation v Resource Capital Fund IV LP (2013) 215 FCR 1 (2013) 95 ATR 816 2013 ATC 20-422 Fermanis v Cheshire Holdings Pty Ltd (1990) 1 WAR 373 George v Federal Commissioner of Taxation (1952) 86 CLR 183 (1952) 10 ATD 65 Grainger & Son v Gough [1896] AC 325 Howey v Federal Commissioner of Taxation (1930) 44 CLR 289 (1930) 4 ALJ 307 (1930) 1 ATD 139 (1930) 37 ALR 7 [1930] HCA 45 In the Matter of the "Income Tax Acts 1895 and 1896" (1897) 22 VLR 539 In re Mary Willis (1907) 7 SR (NSW) 435 Joshua Bros Pty Ltd v Federal Commissioner of Taxation (1923) 31 CLR 490 [1923] HCA 3 Lee v New South Wales Crime Commission [2013] HCA 39 (2013) 87 ALJR 1082 (2013) 302 ALR 363 (2013) 251 CLR 196 Littlewoods Mail Order Stores Ltd v Inland Revenue Commissioners [1963] AC 135 [1962] 2 WLR 1228 [1962] 2 All ER 279 (1962) 41 ATC 116 [1962] TR 107 Lym International Pty Ltd v Westpac Banking Corporation [2011] NSWSC 927 Mack v Commissioner of Stamp Duties (NSW) (1920) 28 CLR 373 (1920) 27 ALR 146 [1920] HCA 76 Marshall v Director General, Department of Transport [2001] HCA 37 (2001) 75 ALJR 1218 (2001) 114 LGERA 389 (2001) 205 CLR 603 (2001) 180 ALR 351 Martin v Lowry [1926] KB 550 McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 144 CLR 633 (1979) 53 ALJR 423 (1979) 24 ALR 175 [1979] HCA 19 Miller v Simpson (1903) 3 SR (NSW) 386 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 (1979) 54 ALJR 87 (1979) 27 ALR 129 (1979) 4 ACLR 575 [1980] CLC 40-602 [1979] HCA 61 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (1998) 72 ALJR 841 (1998) 153 ALR 490 [1998] HCA 28 R v Newmarket Income Tax Commissioners; Ex parte Huxley [1916] 1 KB 788 Syme v Commissioner of Taxes for Victoria (1914) 18 CLR 519 [1914] VLR 600 (1914) 20 ALR 336 [1914] AC 1013 (1914) 84 LJPC 39 (1914) 111 LT 1043 (1914) 30 TLR 689 Tarn v Scanlan [1928] AC 34 The Commissioners of Taxation v Abbey (1901) 1 SR (NSW) (L) 4 Union-Fidelity Trustee Co of Australia Ltd v Federal Commissioner of Taxation (1969) 119 CLR 177 (1969) 1 ATR 200 69 ATC 4084 Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 (1945) 19 ALJ 380 (1945) 14 ABC 79 [1946] ALR 50 [1945] HCA 37 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 (2008) 82 ALJR 489 (2008) 242 ALR 383 (2008) 233 CLR 259 (2008) 170 LGERA 345 Webb v Syme (1910) 10 CLR 482 (1910) 17 ALR 18 [1910] HCA 32 Whitney v Inland Revenue Commissioners [1924] 2 KB 602 Williams v Singer [1919] 2 KB 108 Williams v Singer [1921] 1 AC 65