Sands & McDougall v Commissioner of Taxation

(1998) 147 FLR 323; [1998] VSCA 76

Victorian Court of Appeal

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Interrogate

Catchwords

1. Taxation
2. › Sales tax
3. › Nature of sales tax liability
4. › Whether sales tax liability is a debt
5. › Whether wholesaler is mere conduit or tax gatherer
6. › Whether sales tax remittances can constitute unfair preferences in winding up
7. › Sales Tax Assessment Act 1992 (Cth), ss 16, 61, 63, 69, 123, 125
1. Corporations
2. › Winding up
3. › Preferences
4. › Unfair preferences
5. › Payments of sales tax to Commissioner of Taxation
6. › Whether payments resulted in creditor receiving more than in winding up
7. › Corporations Law, ss 588FA(1), 588FC, 588FE(2), 588FF(1)
1. Corporations
2. › Winding up
3. › Preferences
4. › Running account defence
5. › Continuing business relationship
6. › Whether relationship between Commissioner of Taxation and taxpayer constitutes continuing business relationship
7. › Whether running account exists between taxing authority and taxpayer
8. › Corporations Law, s 588FA(3)
1. Corporations
2. › Winding up
3. › Preferences
4. › Defence of good faith and no reasonable grounds for suspecting insolvency
5. › Distinction between suspicion and belief
6. › Whether Commissioner discharged onus of proving no reasonable grounds to suspect insolvency
7. › Corporations Law, s 588FG(2)

Quick Take

Payments of sales tax (and by analogy other indirect taxes) by an insolvent company to the Commissioner of Taxation are capable of constituting unfair preferences recoverable by a liquidator under Part 5.7B of the Corporations Law. The relationship between a taxing authority and a taxpayer does not constitute a 'continuing business relationship' or 'running account' within s.588FA(3). The Commissioner bears the onus under s.588FG(2) of proving absence of reasonable grounds for suspecting insolvency, and the test is one of suspicion, not belief — a lower threshold that requires the Commissioner to act on signs of financial distress rather than waiting for proof of insolvency.