Supreme Court of Victoria finds that the four year limitation period goes to the substance of GST liability

In Re Tomker Pty Ltd (in Liquidation[2016] VSC 656 the Supreme Court of Victoria found that the expiration of the four year limitation period in s 105-50 of Schedule 1 to the TAA went to the substance of the tax liability rather than just to its recoverability. Accordingly, if the four year period had expired, the tax amount was not ‘payable’ and it could be plausibly argued that there was no debt at all. The Court gave leave to the defendant (a director of the taxpayer in liquidation) under s 471A(1A)(d) of the Corporations Act to allow the lodgement of an objection to assessments of net amount lodged by the defendant in the name of the taxpayer on the basis that the assessments were issued outside the four year limitation period.

The decision provides an interesting discussion on the interaction between the taxation regime established by the GST Act and the TAA and the insolvency provisions in the Corporations Act. It should be noted that the assessments were issued under the regime in place prior to the self-assessment regime in operation from 1 July 2012.

The Facts

The facts can be summarised as follows:

  • the company was wound up on 22 July 2013 pursuant to a statutory demand issued by the Commissioner in respect of debts totalling $95,482.73.
  • the liquidator issued proceedings against the defendant (as a director of the company) for insolvent trading. The primary amount sought by the liquidator at the time was $99,950.80, which was composed entirely of the debt due to the Commissioner.
  • the Commissioner had lodged a number of proofs of debt over time, each amending the previous proof of debt. The initial proof of debt was dated 7 October 2013 in the amount of $99,950.80. Further proofs of debt were lodged between December 2015 and May 2016. The proofs of debt appear to have been issued to the company as a partner in a partnership – with the partnership being the taxpayer that lodged BAS statements.
  • the Commissioner issued assessments of net amount to the partnership on 29 April 2016 with respect to tax periods 30 September 2010, 31 December 2010, 31 December 2010, 31 March 2011, 30 June 2011, 30 September 2011, 31 December 2011, 31 March 2012 and 30 June 2012 – the assessments sought to recover unpaid net amounts. It appears that the recovery flowed from various revisions made to the partnership’s BASs pursuant to revised BASs lodged in June 2012.
  • the defendant sought to object to the assessments on the basis that they were time barred by s 105-50, except for the tax period ended 30 June 2012 – this was because the assessments were issued by the Commissioner more than four years after the lodgement dates for the tax periods in question.

The effect of s 105-50

The Court concluded that the four year period established by s 105-50 could be contrasted to the six year limitation periods established by the liquidation and insolvent trading regimes in the Corporations Act – including s 588(4) which requires that the recovery of loss and damage, as a debt due to the company, must be commenced within six years of the beginning of the winding up.

The Court described the competing contentions as follows:

[44] …The liquidator contends that:

A creditor will have suffered loss and damage in relation to a debt at the moment that debt is incurred because of the company’s insolvency.

The loss and damage does not cease to have been suffered because of the operation of s 105-50 of the TAA. Similarly, the loss and damage does not cease to have been suffered because of the winding up of the company.

[45] That is, loss and damage occurred at the time of incurring the tax liability. That loss and damage is not affected by the expiration of the time period in s 105-50 of the TAA. Rather, it can be recovered at any time within the six years set by s 588M(4).

[46] Against this construction, s 588M(1)(b) also speaks of a person ‘to whom the debt is owed’ (emphasis added). This suggests that if the tax amount is no longer payable by virtue of s 105-50 of the TAA, recovery in the liquidation is not possible: there ‘is’ no longer any debt which is owing to the Commissioner. If this construction is accepted, the four year time limit is determinative.

The Court considered that the conclusion that the four year period in s 105-50 is determinative led to the second issue – whether the four year period was affected by the liquidation of the plaintiff. The liquidator contended the the debt was owing at the relevant date and was therefore provable in the liquidation and that the four year period in s 105-50 had expired had no impact. The Court noted that a debt that was not statute barred at the commencement of a winding up may still be proved in a liquidation, even if it is proved after the debt would ordinarily be statute barred. However, the Court found that this did not assist the liquidator because s 105-50 had substantive operation in relation to a tax amount (and not just an impact on recoverability) – meaning there was no debt on the expiration of four years.

The conclusion of the Court was as follows:

[60] Any assessment made by the Commissioner therefore had to be made within the four year period set by s 105-50. It is only an amount which is the subject of a notice of assessment made within the four year period which is payable after the expiration of the four year period (in the absence of fraud or evasion): s 105-50(3)(a) TAA.

Comment

The Court may well be correct that s 105-50 has substantive operation. That conclusion is consistent with the approach of the AAT in the context of s 105-55, which provides an equivalent four year limitation period on a taxpayer’s entitlement to recover refunds of overpaid net amounts – see Swanbat Pty Ltd and Commissioner of Taxation [2013] AATA 891 at [46]:

the time limit imposed by this section is not just a procedural nicety. It has a substantive effect, curtailing the rights of a taxpayer to a refund or payment within four years from the end of the relevant tax period.

A similar finding was made by the Tribunal in Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 at [17]:

In my view, s 105-55 of Sch 1 to the Act has substantive effect in that the expiry of the four year time limit extinguishes the right of a taxpayer to notify the Commissioner of an entitlement to the input tax credit. As such the provision certainly denies the entitlement of an entity to an input tax credit. The High Court of Australia has also recognised that taxation legislation which imposes time limits on amending an income tax assessment to have substantive rather than procedural operation: see McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263.

However, the case appears to have been argued on the premise that s 105-50(1) applies if the Commissioner does not issue an assessment before the expiration of four years. An assessment does operate as a “notification” for the purposes of s 105-50(3) so as to stop the limitation period: Cyonara Snowfox Pty Ltd v Commissioner of Taxation [2012] FCAFC 177 at [173]. However, s 105-50(3)(a) does not require the Commissioner to issue an assessment within 4 years – rather, the Commissioner must have “required payment of the amount or the amount of the excess by giving notice to you”.  In Brookdale Investments Pty Ltd and Commissioner of Taxation [2013] AATA 154 the Tribunal took a broad view as to what constituted a “notice”(at [80]):

(i) Section 105-50 of the TAA does not stipulate that any particular formality is required by a notice under the section, provided the notice brings to the taxpayers attention that the Commissioner claims an entitlement to an unpaid net amount: see Federal Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39; (1994) 181 CLR 1 at 14;

(ii) Section 105-50 of the TAA is directed at providing notice, not a formal claim or demand. All that is required by s 105-50 of the TAA is to bring to the taxpayer’s attention that the Commissioner is of the view that there is an unpaid net amount. That is, all that s 105-50 of the TAA requires is sufficient information to be given to the recipient of the notice that the Commissioner is claiming an amount is due in respect of a particular tax and for a specified period: see Revlon Manufacturing Ltd v Federal Commissioner of Taxation (1995) 96 ATC 4301 at 4053;

While the Commissioner did not issue an assessment until after the four year period had expired, the Commissioner may have given some other “notice” prior to the expiration of four years that fell within the terms of s 105-50. If that was the case, one would expect the Commissioner to raise that matter in making a decision on the objection.

 

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