A case before the Administrative Appeals Tribunal (AAT) in October 2020 upheld the Commissioner of Taxation’s (the Commissioner) position that an external administrator may not claim input tax credits (ITCs) on acquisitions made by a company prior to the administrator’s appointment even when the acquisitions are paid for by the administrators during the term of their appointment.
The case in question is Richard Albarran, Brent Kijurina and Cameron Shaw as Joint Administrators of Cooper & Oxley Builders Pty Ltd as trustee for the Cooper & Oxley Unit Trust and Commissioner of Taxation (Taxation) [2020] AATA 4325.
The issues of particular relevance in this case are the mismatch between accounting methods between the Company and the Administrators, and the scope of authority of administrators in managing a company’s affairs according to s 58-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth).
Background
The Company accounted for goods and services tax (GST) on an accruals basis, that is, when an invoice is received or generated, or consideration is paid or received within the accounting period, whichever occurs first.
The Administrators accounted for GST on a cash basis, that is, when consideration is paid or received within the accounting period.
Timeline of Events
January 2018
The Company made, and were invoiced for, certain acquisitions.
February 2018
The Administrators were appointed.
March 2018
The Administrators paid the invoices for the January acquisitions.
May 2018
Control of the Company was returned to its former directors under a Deed of Company Arrangement.
15 June 2018
The directors caused the Company to lodge an activity statement for January 2018 which, as they accounted for GST on an accruals basis, included ITCs for the January acquisitions.
22 June 2018
The Administrators lodged an activity statement for March 2018 and, as they accounted on a cash basis, included the ITCs on the January acquisitions which they had paid for in March.
The $329,256 of ITCs were not included in the assessment of the Administrators’ net amount for the March 2018 tax period because the Commissioner maintained that the Company, not the Administrators, was entitled to the ITCs.
The Administrators’ objection was rejected by the Commissioner and failed on appeal to the AAT.
Outcome of the Appeal
Both the Commissioner, and Senior Tribunal Member R J Olding, when considering the Administrators’ objection and appeal, took a strict view of A New Tax System (Goods and Services Tax) Act 1999 (Cth) s 58.10(1) when determining whether the acquisitions were within the scope of the representatives’ (the Administrators) authority.
As the acquisitions were made by the Company before the Administrators were appointed, they both determined that the acquisitions were not made by the Administrators, were not made during the Administrators’ period of appointment and were therefore, not within the Administrators’ authority. Hence the Administrators were not entitled to the associated ITC.
Conclusion
An Administrator cannot assume that they can view GST liabilities and Input Tax Credits the way they would in the normal course of running an enterprise.
Instead, they need to consider multiple moving parts including, but not limited to, separation or overlap of accounting periods, accrual or cash GST accounting periods, the interplay of the legislation regulating corporate insolvency, GST and income tax, and the limits of administrators’ responsibility and authority in each situation.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.
