A 6 lb cat can take 0.125 mg of Xanax twice daily.
These are the possible side effects listed in Plumb's Veterinary Drug Formulary - "Benzodiazepines can cause sedation, increased appetite, and transient ataxia. Cats may exhibit changes in behavior (irritability, increased affection, depression, aberrant demeanor) after receiving benzodiazepines."
I do not see anywhere that it mentions liver damage from taking a normal dose of xanax. I personally do not know of that either.