Edited version of your private ruling

Authorisation Number: 1012566673641

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Ruling

Subject: Receiver and manager issues

Question 1

Can you, in your role as Receiver and Manager, continue to use the existing entity Tax File Number (TFN) and Australian Business Number (ABN) for the duration of your appointment?

Answer

Yes

Question 2

Will you, in your role as Receiver and Manager, be liable to pay income tax under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the running of the business and sale proceeds relating to the sale of property owned by the entity?

Answer

No

This ruling applies for the following periods

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts

A relevant Court appointed you as Receiver & Manager of the entity.

The Court ordered that the entity be dissolved as of a date before you were appointed.

The appointment was consented to by the parties to the proceedings.

A brief summary of the powers granted to you, in your role as Receiver & Manager, by the Court in the Orders are detailed below:

· Get in, collect and receive all property of the entity

· Manage the business of the entity pending sale of all the assets of the business

· For the purpose of managing the business, conduct banking associated with the business and have authority to operate the bank accounts operated by or on behalf of the entity

· Sell the assets of the business by auction, treaty, tender or expression of intent as the Receiver & Manager shall determine

· Shall prepare final accounts for the receivership as from the date outlined in the Court documents to the final distribution

· Subject to any further order of the Court distribute the assets of the entity in accordance with the relevant Act.

You have continued the business of the entity from the date of your appointment, receiving rents from tenants and discharging expenses as required.

You are in the process of selling all entity assets.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6(1)

Income Tax Assessment Act 1936 Paragraph 254(1)(a)

Income Tax Assessment Act 1936 Paragraph 254(1)(b)

Income Tax Assessment Act 1936 Paragraph 254(1)(d)

Income Tax Assessment Act 1936 Paragraph 254(1)(e)

Income Tax Assessment Act 1997 Section 960-105

Reasons for decision

Question 1

The relevant Court made an Order that the entity be dissolved. The Court appointed you as Receiver and Manager of the entity. The Court further ordered that you had certain powers including managing the business pending the sale of specified assets of the entity. In order for you to conduct the business while attempting to sell the entity's assets, you must be able to continue to use the entity's TFN and ABN. Therefore you can continue to use the TFN and ABN of the entity until such time as you have finalised the affairs of the entity as outlined in the Court Order.

Question 2

Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) imposes duties and obligations on agents and trustees.

Paragraph 254(1)(a) of the ITAA 1936 provides that a trustee or agent is answerable as taxpayer 'for the payment of tax' on the income, or any profits or gains of a capital nature, derived by them in their representative capacity, or derived by the principal by virtue of their agency.

Paragraph 254(1)(b) of the ITAA 1936 provides that a trustee or agent is assessed on that income or those profits or gains, but are assessed in their representative capacity only.

Paragraph 254(1)(d) of the ITAA 1936 provides that an agent or trustee is authorised and required to retain from time to time out of any money which comes to them in their representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.

Paragraph 254(1)(e) of the ITAA 1936 provides that an agent or trustee is made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that they have retained, or should have retained, under subsection 254(1)(d); but they shall not otherwise personally be liable for the tax.

You have been appointed Receiver & Manager by the Court.

A receiver appointed by the court is neither the agent of the parties to the action nor of the party on whose application he or she was appointed (Burt, Boulton & Hayward v. Bull [1895] 1 Q.B. 276)

Agent is defined in subsection 6(1) of the ITAA 1936 by reference to section 960-105 of the ITAA 1997, and includes:

(1) an entity who, in Australia, for or on behalf of another entity outside Australia, holds or has the control, receipt or disposal of any money of the second entity

(2) every person declared by the Commissioner to be an agent or the sole agent of any person for any of the purposes of the Act.

You do not hold or have the control, receipt or disposal of any money belonging to any person out of Australia, nor has the Commissioner declared you to be an agent of the entity for any of the purposes of the Act.

You are therefore not an agent of the entity.

You are not appointed as a trustee of the entity.

Trustee is defined in subsection 6(1) of the ITAA 1936 as follows:

trustee in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes:

(a) an executor or administrator, guardian, committee, receiver, or liquidator; and

(b) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability.

As you have been appointed as receiver, you are a trustee pursuant to section 6(1) of the ITAA 1936.

The definitions in subsection 6(1) apply "unless the contrary intention appears".

There is a presumption that defined terms have their defined meanings, and this presumption is not to be displaced without good reason (Qantas Airways Ltd v. Chief Commissioner of State Revenue [2008] NSWSC 1049 at [38]).

The context in which defined words are used dictate their meaning, including whether or not the defined term will apply (DCT (NSW) v. Mutton (1988) 12 NSWLR 104; 79 ALR 509).

In DCT (NSW) v. Mutton (1988) 12 NSWLR 104 at 108; 79 ALR 509 at 512, Mahoney JA, after noting that there is no simple formula for determining what is contrary intention, suggested the following situations in which a definition might be displaced:

· where, if the definition were to be applied, the provisions of or the procedure established by the section in which the defined term is used would not work appropriately

· where the application of the statutory definition would lead to confusion

It is not necessary that the provision is impossible to apply; it is sufficient that the application of the definition would result in the operation of the section in a way which the legislature clearly did not intend (Kennedy v. Anti-Discrimination Commissioner of the Northern Territory (2006) 226 FLR 34 at 39; 92 ALD 134 at 138).

Section 254 is quite specific in so far is it refers to income being derived by the principal by virtue of the agency, or by the trustee as trustee. It is also specific about the capacity in which the agent or trustee must receive the funds in order for the provision to apply to them. Further, it operates on the basis of the person having legal custody of the money of the person to whom the provision applies.

The subsection 6(1) definition of trustee does not go further than to deem certain people, who may not otherwise be a trustee, to be a trustee. It does not deem there to be a trust nor who is a beneficiary, nor define what is the trust property; it does not deem the 'trustee' to derive any income in that capacity.

As such, there appears to be an inherent inconsistency between the scheme established by section 254 and the use of the extended definition of trustee set out in subsection 6(1). A simple application of this extended definition would not enliven many of the requirements set out in section 254. To put it another way a receiver would not be subject to section 254 simply because they fall within the extended definition of trustee. It seems clear that the procedure set out in section 254 does not work appropriately if the extended definition is used, and applying the provision to a person who is not otherwise a trustee would lead to confusion.

It is therefore concluded that the references to trustee in section 254 are references to a person who is, at law, a trustee; and not to the extended definition of trustee in subsection 6(1).

Conclusion

As you are neither the agent nor the trustee of the entity for the purposes of section 254 of the ITAA 1936, that section does not apply to you.

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