Federal Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq)

The Federal Commissioner of Taxation appealed to the High Court of Australia against a decision of the Federal Court concerning the obligations of liquidators under section 254(1)(d) of the *Income Tax Assessment Act 1936* (Cth). The dispute arose after the liquidators of Australian Building Systems Pty Ltd caused the company to sell property, resulting in a capital gain. The liquidators sought clarity on whether they were obliged to retain funds from the sale proceeds to cover potential capital gains tax liability before an assessment had been issued by the Commissioner of Taxation.

The central legal issue before the High Court was whether the retention obligation imposed by section 254(1)(d) on agents and trustees to retain sufficient funds to pay tax which "is or will become due" arises prior to the making of an assessment or deemed assessment in respect of the relevant income, profits, or gains. This required the Court to interpret the phrase "tax which is or will become due" within the context of the statutory scheme.

The High Court, applying the principles established in *Bluebottle Book Distribution Pty Ltd v Federal Commissioner of Taxation*, held that the retention obligation under section 254(1)(d) arises only after an assessment has been made. The Court reasoned that the phrase "tax which is or will become due" refers to an ascertained sum, and without an assessment, it is not possible to determine with sufficient certainty the amount of tax that is due or will become due. To interpret the provision otherwise would impose an obligation of undefined content and could require the retention of more than the eventual tax liability.

Consequently, the High Court dismissed the appeals, upholding the Federal Court's decision that the liquidators were not obliged to retain funds from the sale proceeds to cover capital gains tax liability until an assessment had been issued by the Commissioner.