Most readers will be familiar with the power of the Deputy Commissioner of Taxation to issue a notice under section 260-5 in schedule 1 to the Taxation Administration Act.

Such a notice is effectively a garnishee which operates so as to require a person owing money to a tax payer to pay the money owed to the Commissioner instead of the taxpayer. Obviously such power is only used by the Commissioner in circumstances where the tax payer owes the Commissioner money and in common with a garnishee issued by a Court, upon receipt of such a notice the debt owed by the person to the tax payer can only be discharged at law by paying it to the Commissioner.

There is nothing new in any of this.

What we have experienced recently however is a new practice by the Commissioner in reliance upon the rights granted to the Commissioner upon service of such a notice. To understand how that power is exercised it is important to appreciate that upon service of the notice the Act provides that the debt the subject of the notice now becomes money owing to the Commissioner.

It is of course a very common scenario for companies to owe money to their directors when they are placed into liquidation.

The new practice involved the Commissioner, after service of the section 260-5 notice on the liquidator, lodging a proof of debt in the winding up (of course the same principle applies in administrations) and a proxy in reliance upon that proof of debt.

The law prohibits 2 proofs of debt being lodged with respect to the same debt and of course there can only be one proxy held with respect to one debt.

It follows that if a 260-5 notice is served with respect to money owed by the company to a director (or indeed any other creditor) the Commissioner is entitled to vote in place of the director (or creditor) at any subsequent meeting of creditors. The Commissioner will do so in place of the director/creditor.

This practice represents a new twist on the powers of the Commissioner consequent upon the service of a 260-5 notice and while the practice is not as yet wide spread may become more so.