GST and insolvency practitioner liability: who are you?

Abstract

[Introduction]: The imposition of a general consumption tax in Australia from 1 July 2000 has raised interpretation and application issues for many industry groups. One of those groups affected are insolvency practitioners. The legislation, as it operates in relation to them, seems unclear in several respects. The legislation that details most of the obligations in relation to the payment of the Goods and Services Tax (GST) uses the word ‘you’ to ascribe the obligations. This article examines how the use of the word ‘you’, as used in the legislation, affects the position of companies as far as liability for goods and services tax is concerned, when they are under some form of administration because of insolvency. In particular, it suggests that there is considerable doubt as to how the provisions within the goods and services tax legislation might operate where an external party is in control of the company because of insolvency. The goods and services tax legislation appears to contain a gap as to where liability might fall because it seems to fail to take into account some fundamental aspects of insolvency law, as it relates to companies in these circumstances. The use of the word ‘you’ in relation to a taxable supply and also in relation to creditable acquisitions, does not make it clear who is being referred to in these circumstances. The article does not examine any of the many other issues that arise in relation to insolvency practitioners and GST. Some of these have been considered elsewhere. This article concentrates on the very fundamental issue of the position of an insolvency practitioner in respect of the liability for basic transactions that occur during the period of administration. The article commences by describing the current law as it relates to the position of liquidators, receivers and managers, and administrators under a voluntary administration and administrators under a deed of company arrangement in relation to the entity to which they are appointed. It then briefly describes the relevant provisions of the goods and services tax legislation. It analyses these in the light of the earlier explanation of the law and makes some observations about what might be done to clarify the position. It also discusses the potential use of the Corporations Act, in this regard.