The High Court has dismissed two appeals against a decision of the Full Federal Court on liquidators’ obligations to retain from the proceeds of sale an amount sufficient to pay tax on the sale of a property. The liquidators of ABS sold a property on which ABS made a $1.12m capital gain, which became part of ABS’s assessable income for that year. That assessment would be issued to ABS not the liquidators in their capacity as liquidators. The central issue was whether s 254(1)(d) of the Income Tax Assessment Act 1936 (Cth), which relates to the obligations of trustees (here, the liquidators), required the liquidators to retain the amount before the issue of an assessment (as the Commissioner contends), or whether that obligation arises only after the issue of an assessment. The primary judge held that the obligation arose only after the issue of the assessment. On appeal to the Full Federal Court, Edmonds J (Collier J agreeing and Davies J largely agreeing) agreed with the primary judge’s conclusion, but on the basis that the capital gain would be assessed to ABS, rather than to the liquidators, and the phrase ‘will become due’ requires certainty that ‘cannot be predicted prior to the issue of a relevant assessment’ (at [29]).

The Court dismissed the appeals by 3:2 majority. French CJ and Kiefel J held that the retention obligation does not arise prior to the issue of an assessment. After examining each of the Commissioner’s submissions on the text and context in construing s 254(1)(d) (see at [27]–[41]), their Honours concluded, at [42], that those arguments could not overcome the weight of the factors considered in Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54, which examined the similarly worded s 255(1)(b) (see at [24]–[26]). Those considerations were said to be equally applicable to s 254(1)(d), and that the Commissioner’s construction would ‘produce such a marked difference between [s 254(1)(d)] and the almost identically worded language of s 255(1)(b) that nothing less than strong contextual support would justify it. The matters of context referred to by the Commissioner do not justify this construction’: [42]. French CJ and Kiefel J preferred the FCAFC’s construction of s 254(1)(d). Gageler J also dismissed the appeal, noting that while there were differences between ss 254 and 255 (see [57]), the respondent’s interpretation should be preferred because it for several reasons, among them, that it fits with the structure of s 254 which places the retention obligation after the performance of the assessment obligation, and that it produces certainty about the total amount the agent or trustee must retain (see [58]–[64]): Gageler J preferred the reasoning of Davies J in the FCAFC, and also adopted Keane J’s reasoning on Edmonds J and Collier J’s reasons in the FCAFC.

Keane J and Gordon J would have dismissed the appeals. Keane J held that the ordinary meaning of the language of s 254(1)(d) (see [116]ff), the substantial textual and contextual differences between it at s 255 (see [125]ff), and the purpose of s 254 (see [130]ff) all supported the conclusion that the retention obligation arises as and when income, profits or gains are derived that have or will be assessed for tax. Gordon J also held that this construction should be preferred due to, among other things, the terms of s 254 (see [184]ff), its accordance with the general law duties and obligations of trustees (see [199]ff), and the absurdities that might result from the obligation arising after assessment (see [213]ff). Gordon J also held that the construction of s 255 in Bluebottle is inapplicable to s 254 (see [218]ff).