Liquidator not obligated to retain funds in the absence of an assessment

On 21 February 2014 the Federal Court handed down its decision in Australian Building Systems Pty Ltd (in liq) v Commissioner of Taxation [2014] FCA 116  with the result that liquidators and receivers and managers cannot be held personally liable for any CGT liability subsequently assessed as due (where funds are remitted in the ordinary course and to secured creditors before the Commissioner of Taxation issues the assessment).

Despite the decision, Hall & Wilcox recommends liquidators and receivers and managers exercise a certain degree of caution.  While the Commissioner’s arguments were comprehensively rejected by Justice Logan of the Federal Court, we consider that the Commissioner may appeal given his loss of priority and the negative impact on the tax base.


The liquidators sold the company’s property in April 2011, giving rise to a CGT event.

The liquidators sought a private ruling from the Commissioner in relation to the obligation of a trustee (which includes a liquidator and a receiver and manager) under section 254 of the Income Tax Assessment Act 1936 (1936 Act) to retain funds from the sale of the property to cover any potential CGT liability.

The Commissioner ruled that the liquidators were obligated to retain funds.

The liquidators appealed to the Federal Court.


The Commissioner maintained that it was not necessary for a notice of assessment to be issued for the retention obligation to arise under section 254 of the 1936 Act.

In contrast, the liquidators submitted that in the absence of a notice of assessment there could be no obligation to retain sale proceeds for tax which had not yet been assessed.

The Court agreed with the liquidators and held that the obligation to retain funds arose upon the issuing of a notice of assessment.  That is when the amount becomes ‘due’, where ‘due’ is defined as ‘assessed as owing’.  Accordingly, as no notice of assessment had been issued, there was no amount owing and the liquidators were not required to retain sufficient funds to satisfy the potential CGT liability.


The Court noted that a prudent liquidator might still choose to retain sufficient funds to satisfy a potential tax liability which will arise on the issue of a notice of assessment.

If the decision is not appealed, we consider that liquidators and receivers will be able to take comfort that, in the absence of a notice of assessment, they will not be personally liable for any CGT liability subsequently assessed as due (where the funds have already been disbursed at the time the assessment is issued).  This is to be contrast with the position of the taxpayer company itself which remains liable for the tax assessed.

We note that the time for the Commissioner to lodge an appeal against this decision has not yet expired and any decision to disburse funds prior to the lodgment of any appeal should be treated cautiously.

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