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Edited version of your written advice
Authorisation Number: 1051286874789
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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
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Date of advice: 20 October 2017
Ruling
Subject: Insolvency Accounting
Question 1
How should you account for, and be liable for, any GST collected from the ledger?
Answer
You should account for, and be liable for reporting and remitting any GST for which you are responsible as liquidator, and that of the Group, which you discover has not yet been reported and remitted.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) section 58-10
A New Tax System (Goods and Services Tax) section 58-60
Relevant facts and circumstances
● You were appointed Liquidator of X Pty Ltd (In Liquidation) on Y.
● You were subsequently appointed Liquidator of two related entities, V Pty Ltd (In Liquidation) on X and W Pty Ltd (In Liquidation) on X.
● The companies above (“the Group”) were grouped for GST
● The Group operated an E business and had two major customers.
● One of the major customers, K Pty Ltd (“K”) holds a contract with Q.
● You continued to employ staff of the Group for a period of two days following your appointment to enable you to undertake financial analysis to decide whether it was viable to continue trading.
● During the two day period the staff did not continue to process work in progress (WIP). You dismissed all staff with the exception of one administration staff member and a manager tasked with overseeing completion of the on the WIP on foot with Q so final billing could be undertaken.
● You decided that you were unable to continue trading due to Q not allowing the Group (In Liquidation) access to the worksite to advance the WIP.
● At the time of your appointment it became apparent that the records maintained by the Group were insufficient to determine the full extent of the debtor’s ledger owing to the Group.
● You have entered negotiations with Q and are close to reaching settlement.
● At the time of your appointment the debt owing to the Group from Q was $:
● The amount shown as pre-appointment debtors was invoiced prior to your appointment and you believe GST should be recorded in the pre-appointment balance as a Company liability.
● The amounts shown as “Amounts finished but not invoiced” and “Sub-contracted work finalised” were works fully completed by the Group before your appointment but were yet to be invoiced. Q have agreed to make full payment on this amount and you are yet to issue invoices.
● The amount shown as “Works unfinished” was WIP at the date of your appointment. To comply with the obligations of the contract between Q and the Group, you engaged the manager to complete a document required by the contract called a “Task Progress/Completion Certificate (“TPCC”) for each item of unfinished WIP. Those documents have enabled negotiations as to the outstanding liability to proceed and you are now close to settling the outstanding amount which will be paid to the Group in the coming weeks.
● To avoid any doubt you seek a ruling as to how you should account and be liable for any GST collected from the ledger.
Detailed reasoning
Subsection 58-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (“the GST Act”) states:
(1) A *representative of an *incapacitated entity:
(a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; and
(b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or *creditable importation; and
(c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have;
to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative’s responsibility or authority for managing the incapacitated entity’s affairs.
As the representative of the Group, you are liable to report and remit any GST which the Group (incapacitated entities) would have been liable for. As a Liquidator with extensive powers under section 477 of the Corporations Act 2001, your “scope of responsibility or authority” for the purposes of subsection 58-10(1) of the GST Act is very wide. Subject to the exceptions in subsection 58-10(2), you will therefore be responsible for the GST consequences arising from post-appointment transactions.
In relation to pre-appointment liabilities, subsections 58-60(1) and (2) of the GST Act state:
Representative to notify Commissioner of certain liabilities etc
(1) A representative of an *incapacitated entity must notify the Commissioner, in the *approved form, of an amount of GST for which the entity is liable, or an increasing adjustment that the entity has, if:
(a) the representative becomes aware, or could reasonably expected to have become aware, of the amount of GST, or the adjustment; and
(b) the amount of GST, or the adjustment, has not been taken into account in any *GST return that has been given to the Commissioner; and
(c) the Commissioner has not been previously notified of the amount of GST, or the adjustment, under this section.
(2) The notification must be given to the Commissioner before the day on which the *representative declares a dividend to unsecured creditors of the incapacitated entity.
You must therefore report and remit any GST liabilities which you discover which arose from pre-appointment work performed by the Group before you declare a final dividend.
Administratively, the ATO assigns unique CAC (Client Activity Centres) for the Group and you acting in your capacity as a representative of the Group. Any GST liabilities attributable to pre-appointment transactions will be allocated to the Group CAC, whereas post-appointment liabilities/entitlements will be allocated to your CAC.
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