Insolvency Practitioners Assoc urges member caution on tax liability

 Australia’s Insolvency Practitioners Association (IPA) has told members to:

 “be aware that the sale of an asset of the insolvent company or individual may trigger a capital gains tax (CGT) liability.  The practitioner then needs to determine the status of that liability.  The law in relation to where CGT liability falls on the sale of an asset by an insolvency practitioner is not clear”.

 The warning appears today (March 10, 2011) on the IPA website.

 The issue of post-appointment tax debts has been highlighted on this blog as follows:

 o       Post-appointment income tax debts of liquidator (October 10, 2010)

o       Taxing capital gains made during liquidation (October 15, 2010)

o       Legal opinion warns external administrators about personal liability for company taxes (November 16, 2010)

The IPA’s complete statement reads:

“Capital gains tax – need for caution in insolvency administrations 

Insolvency practitioners should be aware that the sale of an asset of the insolvent company or individual may trigger a capital gains tax (CGT) liability.  The practitioner then needs to determine the status of that liability.  The law in relation to where CGT liability falls on the sale of an asset by an insolvency practitioner is not clear. 

For example, in the case of a controllership, the liability may be a liability of the company itself, or a personal liability of the controller. In the case of a bankruptcy, the CGT liability may fall on the bankrupt or become a liability of the trustee or simply be a post-bankruptcy debt. 

The IPA has been in discussions with the ATO for some time in an attempt to come to a correct position.  The ATO is yet to give its view or issue any ruling. 

The IPA will advise members of any developments in clarifying the legal position with the ATO.  In the meantime, members should be aware of this issue and take their own advice as necessary in relation to CGT liabilities in their administrations.

 Any questions, please contact us.”

It would be interesting to know what the IPA’s point of view is on this tax issue.  Presumably there is disagreement between it and the ATO as the two of them work together to “come to the correct position”.  More than likely the point of contention concerns the personal liability of external administrators.