TAX Alert: The Commissioner of Taxation’s compulsive powers are not fettered by liquidation

14 July 2015


Commissioner of Taxation v Warner [2015] FCA 659

The Commissioner’s “notice to produce” powers are not fettered by the Corporations Act restrictions on a creditor’s right to inspect the books of a company in liquidation, says a recent Federal Court decision.

The Court observed that the Commissioner has the power to undertake broad inquiries for the purposes of administering the tax law under section 264 of the ITAA36 (income tax), and its “sister” provision, section 353-10 of Sch 1 TAA (indirect tax, such as GST). Relevantly, under these broad powers a person can be required to produce documents to the Commissioner, even for the purpose of a “fishing expedition”.

The liquidators in this case sought to avoid complying with notices to produce, by reference to section 486 of the Corporations Act, which prevents a creditor from inspecting the books of a company in liquidation except when authorised by an order of the court. In other words, the liquidators did not propose to produce the documents without a court order.

However, the Court found that an ATO officer exercising “compulsive powers” against a liquidator for the purpose of administering the tax law is not a “creditor” under section 486, even though the company may have a tax liability to the ATO.

While the Commissioner is as far as possible placed on a par with other creditors with respect to the ultimate distribution of the company’s assets, this does not mean that it should be on a par with other creditors with respect to access to the company books.

In coming to that conclusion, the Court looked at the purpose behind section 486. It observed that creditors have no general right to inspect the company books, but may be permitted access under section 486 if they have a legitimate interest in doing so, as opposed to some other agenda. Additionally, an ordinary creditor will know the extent of what is owed to them by the company.

In contrast, the Commissioner was said to have a legitimate interest irrespective of the winding up, in order to discharge her or his statutory duty, and “it is not the case that the Commissioner might have some other purpose in mind unrelated to the proper exercise of those statutory powers”.

The extent of the tax liability, it was said, will generally be uniquely in the taxpayer’s knowledge. The Court found no reason why Parliament would wish to restrict the Commissioner’s “notice to produce” powers because the person from whom production was sought had gone into liquidation.

As a result, if a liquidator receives a notice to produce from the Commissioner, then this decision stands for the proposition that, unlike other creditors, the Commissioner does not need a court order under section 486 to gain access.

Written by:

Arthur Athanasiou | Partner | +61 3 8080 3563 |

Mark Gioskos | Lawyer | +61 3 8080 3657 |