Guildford wrote on May 3^rd, 2012 at 11:20am:


Very interesting.

Crown debt once took priority over other debts and the ATO had to be paid in full before other creditors received a cent, but this rule was abolished years ago.

The ATO has long had the power to garnishee debts which someone owes to a company. If a company owes tax to the ATO and someone owes money to the company, the ATO can require that debtor to pay the money to the ATO, rather than to the company, by serving a section 260-5 notice on the debtor.

What happened in the Bruton case was that the ATO served a section 260-5 notice on a debtor, but did so after the company had gone into liquidation. It appeared that the ATO was exploiting a potential loophole in order to bring back crown debt priority from the dead.

The Federal Court upheld the ATO's decision but, on appeal, the High Court overturned the Federal Court's decision.