In a decision handed down on Mon 21.3.2016, the Qld Supreme Court held that garnishee notices issued to the purchasers of a property held on trust were invalid.

The taxpayers, a custodian company and 2 individual trustees of a self-managed superannuation fund (SMSF), had a payroll tax liability under the grouping provisions of the Payroll Tax Act 1971 (Qld). The custodian entered into a contract to sell real estate that it held on trust for the benefit of the SMSF trustees. Prior to settlement, the Qld Commissioner of State Revenue issued garnishee notices under s50 of the Taxation Administration Act 2001 (Qld) to the purchasers and a real estate agent. Section 50 applies where, inter alia, a person “is liable or may become liable to pay an amount to the taxpayer”. The taxpayers argued that s50 does not authorise the Commissioner to issue a garnishee notice in respect of money that the taxpayer has the right to receive in a trustee capacity, because the money does not “belong” to the taxpayer.

The Court said it had difficulty accepting the taxpayers’ proposition because assets held on trust “are still assets which are properly regarded as owned by (and, therefore, belonging to) the trustee”. However, the Court then said that s50 should only apply where the right to payment from the garnishee was legally and beneficially held by the taxpayer and the taxpayer was free to use the right in the taxpayer’s own interest. The Court said that the Commissioner knew that, at the time of issuing the notices, the taxpayer to whom the debt was owed did not have a full legal and beneficial interest in the debt. Accordingly, it held that the garnishee notices were invalid.

(Can Barz Pty Ltd & Anor v Comr of State Revenue & Ors [2016] QSC 59, Qld Supreme Court, Bond J, 21 March 2016.)

[LTN 54, 21/3/16]