The taxpayer was the registered proprietor of property over which two mortgages were registered. The taxpayer entered into a contract for sale of the property, but the purchase price was not sufficient to pay out the loans secured by both mortgages in full.
The Commissioner of Taxation served notice under section 260-5 of the Taxation Administration Act 1953 (Cth) on the purchasers’ solicitor and subsequently on the purchasers personally, requiring payment of an outstanding tax debt owed by the taxpayer. The notice stated that the purchasers were required to pay the tax debt, or, if the money they owed to the taxpayer was less than the amount of the tax debt, the whole of the available money. The notices acted as garnishee notices, and the tax debt had to be paid immediately when the money became owing to the taxpayer.
Prior to the notices being served, a trustee was directed to take control of the taxpayer’s property under the Bankruptcy Act 1966 (Cth) and a sequestration order was made subsequent to settlement of the sale. The vendor’s bankruptcy was not an issue in the proceedings.
As settlement approached, a disagreement arose as to how the proceeds of sale would be apportioned to the various parties. The Commissioner refused to release the purchasers from the section 260-5 notices unless the tax debt was paid. The first mortgagee was to receive the total amount owing to it. The second mortgagee refused to provide a release of its mortgage unless it was paid the full amount owed to it under the facility.
As a result of the disagreement, settlement was delayed and eventually took place some days later. The first mortgagee provided a full release of its mortgage in exchange for payment of the total amount secured by its mortgage. The second mortgagee provided a release of its mortgage on the condition that the balance proceeds of sale were held in its trust account pending resolution of the disagreement.
The Commissioner consented to settlement going ahead under the arrangements which included the second mortgagee’s release and the balance proceeds being paid into the second mortgagee’s trust account, but made clear that its consent was not to be interpreted as a surrender of its claim to the tax debt.
Prior to the proceedings being heard at first instance, the amount of the tax debt was paid into court and the balance remaining in trust was paid to the second mortgagee in partial satisfaction of the amount secured by its mortgage and assigned to the trustee in bankruptcy all of its right, title and interest in the disputed amount paid into court.
The Commissioner and the trustee were the only parties left disputing entitlement to the disputed amount of the tax debt, the trustee standing in the shoes of the second mortgagee.