In a test case decision handed down on Mon 11.4.2016, concerning a company in liquidation, the NSW Court of Appeal has allowed the Commissioner’s appeal and held that the primary judge had erred in concluding that 4 debits made by the Commissioner were not authorised by Running Balance Accounts (RBA) regime under the TAA. However, the Court dismissed the taxpayer’s cross-appeal and found that the primary judge had correctly accepted the Commissioner’s submission that the relevant provisions applied notwithstanding the insolvency of the taxpayer company.
The appeals concerned the treatment of debits and credits in the RBA system and the application of those provisions during the winding-up of the taxpayer company. The taxpayer was the trustee of a trading trust which owned and operated a caravan park. In August 2010, administrators were appointed to the company and the winding up was taken to have commenced on 27 August 2010. The Commissioner accepted an amended tax return for the company (in liq) for 2011 seeking reduction of a net capital gain to zero as the company was not liable for CGT, resulting in a refund to the company. An amended assessment was accordingly issued in May 2013, but the refund was reduced by the Commissioner for other amounts owing by the company.
The appeal and cross-appeal both concerned the steps taken by the Commissioner between 16 November 2012 and 14 May 2013: the dates respectively of the lodgment of the application for an amended assessment and the Commissioner issuing an amended notice of assessment. The effect of those steps was to deduct from the amount to be refunded to the company (ie a credit in the RBA) by reason of the amended assessment 5 separate sums due by the company (ie debits on the RBA) in respect of tax liabilities (eg PAYG, GST, SGC, etc) it had incurred.
The taxpayer had sought declarations that all 5 of the debits were void and amounted to an attachment, sequestration, distress or execution against the property of the company within the meaning of s 500 of the Corporations Act. The primary judge found that 4 of the debits were not authorised by the regime established by Pt IIB of the TAA – In the matter of 4 Doonan Street Collinsville Pty Ltd (in liq) [2015] NSWSC 437, Supreme Court of NSW, Black J, 17 April 2015.
After reviewing the matter, the Court of Appeal said the Commissioner was required by Pt IIB of the TAA to net off tax debts (debits) owed by the taxpayer company before making any repayment. The Court said the taxpayer had no right to recover any money until such time as the Commissioner had completed the process mandated by Pt IIB of allocating and applying the amount in credit. The Court said the Commissioner’s set off of the credit against other tax liabilities in other accounts was not contrary to ss 500, 501, 553 or 555 of the Corporations Act 2001.
The Court said not only was the Commissioner empowered to allocate and apply excess non-RBA credits to other RBAs established in respect of the taxpayer, but also “the Commissioner is required to continue the process of (re-)allocation and application until there are no remaining primary tax debts or general interest charges against which the (ever-diminishing) credit amount may be applied“.
(FCT v 4 Doonan Street Collinsville Pty Ltd (in liq) [2016] NSWCA 69, NSW Court of Appeal, Gleeson and Leeming JA, Sackville AJA, 11 April 2016.)