This case effectively holds that the 4 year limit, on the Commissioner of Taxation recovering unpaid GST, extinguishes the liability itself, rather than just barring recovery. [The 4 year limit is to be found in s105-50(1) of the Taxation Administration Act 1953 First Schedule (‘TAA1’).]
The issue arose in the context of a liquidator pursuing a director for insolvent trading, trying to recover, on behalf of the company, a debt the Commissioner claimed was owning to him. A liquidator can seek to recover such amounts from a director, if, amongst other things, the Commissioner “suffered loss or damage in relation to the [alleged] debt because of the company’s insolvency” (s588M(1)(b) of the Corporations Act 2001).
Had the 4 year limit been only on recovery of the debt, the Commissioner could have still proved the debt (in the liquidation) so long as recovery of the debt was not statute barred at the time the company went into liquidation. It would not matter that he proved the debt after recovery became statute barred (the debt would, then, be still in existence) [see para 52 of the judgement].
Further, the Commissioner would still have suffered the kind of loss required for an insolvent trading action against the directors in s588M(1)(b) (see above). Then the only relevant limitation period would be on the liquidator commencing the insolvent trading proceedings, which is 6 years from the commencement of the winding up (s588M(4)).
But Associate Justice Randall found that this 4 year limit was not merely on recovery of the unpaid GST. Rather, s105-50(1) actually extinguishes the debt itself. This can be seen from the terms of s105-50(1) itself.
105-55(1) Any unpaid *net amount [of GST] … ceases to be payable 4 years after it became payable by you.
This is really straight statutory construction (taking the words, literally, as they appear in the Act).
The relevant timing of events was as follows.
- The taxpayer company had lodged BAS’s for the quarters from 1 July 2010 to 30 June 2012, but then made revisions to them in June 2012 (reducing its liability for GST-free sales and input tax credits for trucks acquired).
- The company went into liquidation on 22 July 2013, in response to the Commissioner’s statutory demand for $95,482.73.
- On 7 October 2013, the Commissioner lodged his first of 5 ‘proofs of debt’ – the first for $99,950.80.
- In early 2016 the Commissioner commenced an audit and, on 29 April 2016, issued assessments that increased the debt to $175,764.40 (which was reflected in the fifth ‘proof of debt’ lodged by the Commissioner).
The 29 April 2016 assessment was more than 4 years after any GST became payable, for any of the relevant quarters, except the quarter ended 30 June 2012.
These GST liabilities pre-dated the ‘self-assessment’ regime (in Div 155 of the TAA1), which started on 1 July 2012. As a result, GST also arises from the transactions themselves, without any assessment (see s105-15). However, the making of an assessment (under s105-5) is the means by which a taxpayer can access the objection and appeal process (in Part IVC of the Taxation Administration Act 1953). Section 105-40 provides for this.
As the defendant director wanted to lodge a Part IVC objection on behalf of his company, this was enough for the Associate Justice to find the defendants had sufficient prospects of success to authorise (under s474A(1A)(d) & s1322(4) of the Corporations Act 2001) the objection he had lodged on behalf of the company. Success in the objection would then make the insolvent trading action fall away.
Catchwords from Austlii report of the case
CORPORATIONS – Corporations Act 2001 (Cth) ss 471A, 553, 588M, 1322 – Winding-up of corporation – Insolvent trading – GST debts incurred while insolvent – Deputy Commissioner of Taxation provided amended proofs of debt – Commissioner is the only creditor – Director objected to assessment by Commissioner – Liquidator refused to lodge objection on behalf of taxpayer – Director lodged objection on behalf of taxpayer – Whether leave should be granted to permit objection to be lodged by director – Whether leave should be granted nunc pro tunc [‘now for then’ – ie. with retrospective effect] – Whether tax is no longer payable because of Taxation Administration Act 1953 (Cth) s 105-50 – Whether tax amount remains payable after four years if taxpayer is in liquidation – Input tax credits – Principles relevant to grant of leave to director of company in liquidation – Prejudice to creditors in granting leave – Prospects of success – Leave granted.