Tribunal finds administrators were not entitled to claim input tax credits on costs paid by administrators

27 November 2020

In brief

In a recent decision by the Administrative Appeals Tribunal, the Tribunal considered whether the administrators, or the company over which they were appointed, were entitled to claim input tax credits for goods and services tax (GST) paid on certain acquisitions. This case highlights that there are circumstances where the tax obligations and entitlements of an external administrator may not align perfectly with its general responsibilities or the way in which it may operate the business.

In detail

In Richard Albarran, Brent Kijurina and Cameron Shaw as Joint Administrators of Cooper & Oxley Builders Pty Ltd as trustee for the Cooper & Oxley Builders Unit Trust and Commissioner of Taxation (Taxation) [2020] AATA 4325 it was found that administrators were not entitled to input tax credits for acquisitions made by an incapacitated entity before it went into administration. 

The acquisitions had been made by the company in January 2018, for which it received an invoice. The administrators were appointed over the company in February 2018 and paid for the acquisitions in March 2018. The administrators claimed the input tax credits on the acquisitions in the Business Activity Statement (BAS) lodged by the administrators for the March 2018 tax period, accounting for GST on a cash basis. Under the terms of a Deed of Company Arrangement, control of the company was returned to its former directors on 25 May 2018. The company lodged a BAS for the January 2018 tax period in which it also claimed the input tax credits, accounting for GST on a non-cash (invoice) basis.

The Commissioner assessed the administrators for the input tax credits claimed in the administrators’ March 2018 BAS on the basis that the company, and not the administrators, was entitled to the input tax credits. The administrators objected to the assessment.

The Tribunal found in favour of the Commissioner and held that:

• Pursuant to section 58-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), an external administrator is “only liable for GST on taxable supplies, and entitled to input tax credits on creditable acquisitions which they actually make, and not on supplies and acquisitions made before their appointment by an entity over which they had no control”;
• Therefore, the administrators were not entitled to claim the input tax credits on acquisitions made by the Company, but paid for by the administrators, as the administrators did not make the acquisitions.

The takeaway

The decision of the Tribunal affirms the position that an external administrator must identify its GST obligations and entitlements on the basis of whether the supplies and acquisitions are made within the scope of their authority for managing a company’s affairs, rather than “following the cash”. In particular, an external administrator will not be entitled to claim input tax credits on acquisitions “made” by a company prior to their appointment, notwithstanding the external administrator pays for those acquisitions.

The case highlights that there are circumstances where the tax obligations and entitlements of an external administrator may not align perfectly with its general responsibilities under the Corporations Act or the way in which it may operate the business. It is not simply enough to assume that where an external administrator has, or satisfies, a liability to pay for goods or services that it will be entitled to claim GST credits on the payment. Equally, it should not be assumed by an external administrator that adopting the pre-appointment GST treatment of transactions and GST registration status of companies over which they are appointed is necessarily correct and will be accepted by the Australian Taxation Office.

Given that external administrators have personal liability for GST and certain other tax obligations of a company over which they are appointed, it is important that administrators carefully consider the particular facts and circumstances, as well as the application of the particular tax rules to those circumstances, particularly with respect to transactions that span their appointment and retirement.