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Edited version of your written advice
Authorisation Number: 1013137227472
Date of advice: 8 December 2016
Ruling
Subject: Liquidator obligations under Section 254 of the ITAA 1936
Question 1
Is the Liquidator required under Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) to lodge any income tax returns for the Company in respect of the period of appointment as liquidator of the Company?
Answer
No.
Question 2
Is the Liquidator liable to pay any income tax or withhold any amounts under section 254 of the ITAA 1936 in respect of any income, profits or gains arising in connection with the appointment as liquidator of the Company?
Answer
No.
This ruling applies for the following period:
Income tax year ended 30 June 20YY
The scheme commences on:
20XX
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Background and general context
● You were appointed as Liquidator for a company in Liquidation.
● After this date a Notice of Formation of a Tax Consolidated group was approved and then rescinded by the Tax Office.
● A further application for consolidation was made and was approved by the Tax Office in 20YY.
● The date of consolidation was backdated to 20WW.
● The liquidated company is the head company of a consolidated group from 20WW.
● There is one subsidiary member in the consolidated.
● You have not been appointed to the subsidiary company.
● You do not have access to the financial records of the subsidiary company.
● You have continued to run the liquidated company's business from date of appointment.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 252
Income Tax Assessment Act 1936 Section 254
ATO view documents
ATO Interpretative Decision ATO ID 2005/257
ATO Interpretative Decision ATO ID 2003/506
Tax Determination TD 94/68
Tax Determination TD 2012/D7W
Case Reference
James v. Deputy Federal Commissioner of Taxation (1988) 19 ATR 1752 88 ATC 4812
Fermanis v. Cheshire Holdings Pty Ltd (1989) 20 ATR 1862 90 ATC 4201
Commissioner of Taxation v Australian Building Systems Pty Ltd (in liquidation); Commissioner of Taxation v Muller [2015] HCA 48
Reasons for decision
1. Is the Liquidator required under Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) to lodge any income tax returns for the Company in respect of the period of appointment as liquidator of the Company?
Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) applies to an entity that is an agent or trustee for the purposes of the ITAA 1936 and 1997. Section 254 contains provisions which describe the duties and obligations of persons who act as the agents or trustees of taxpayers.
'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
1. Where a Liquidator is appointed to a company, Section 254 of ITAA 1936 places responsibility for the income tax requirements and liabilities of the company on the Liquidator as Trustee from the time of appointment. Thus, it is clear that You as the Liquidator of the Liquidated Company have responsibility for lodging an income tax return in respect of the period commencing from your appointment in 20XX of the income year.
2. Generally, the responsibility of the Liquidator overrides the responsibility of the Public Officer to lodge the return, which arises as a result of section 252 of the ITAA 1936. However, there will be circumstances where both the Public Officer and Liquidator have responsibility for the same obligation. For example, both may be responsible to lodge an income tax return for the same year when the Liquidator has been appointed part way through the year.
3. The Commission takes a practical view in relation to the lodging of income tax returns by acknowledging that both the Public Officer and the Liquidator may have legal obligations to lodge a return for the whole income year. In these circumstances, the Commissioner will look to the person or persons who have control of the financial records to lodge a return for the whole of the income year.
4. The same argument could also be used with regard to the responsibility of the Receiver / Manager and the Liquidator under section 254 of the ITAA 1936. Taxation Determination TD 94/68 provides guidance in the situation where conflicting duties to lodge an income tax return may arise. Accordingly, the Commissioner will look to the person or persons who have control of the financial records to lodge a income tax return for the whole of the income year
5. In this case, You as liquidator do not have access and control over any of the records of the subsidiary company and You do not have full access to records for the Liquidated Company that You would need to compile and lodge an accurate income tax return for the Consolidated Group. The Public Officer has the records and also has information relating to transactions that occurred prior to Your appointment. Accordingly, the Commissioner will look to the Public Officer of the Company for lodgement of the Consolidated Tax Return for the full year.
2. Is the Liquidator liable to pay any income tax or withhold any amounts under section 254 of the ITAA 1936 in respect of any income, profits or gains arising in connection with the appointment as liquidator of the Company?
Subsection 254(1) of the ITAA 1936 provides that a trustee is answerable as taxpayer 'for the payment of tax on the income, or any profits or gains of a capital nature, derived by him in his representative capacity. It also states that a trustee is assessed on that income or those profits or gains 'but in his representative capacity only'.
1. This view is confirmed in Fermanis v. Cheshire Holdings Pty Ltd (1989) 20 ATR 1862; 90 ATC 4201 Murray J held at ATR 1865; ATC 4203 in relation to section 254:
What is clear about that provision is that it creates of itself no tax liability, which is to be otherwise derived from the provisions of the Act, so that if a tax liability is not otherwise to be drawn from the statute, none will be created by sec 254 . . .
It is clear, I think, that the provision operates as a machinery provision to facilitate tax collection in relation to liable trust income when the liability is otherwise imposed than by sec. 254.
2. Therefore, section 254 of the ITAA 1936 does not create a personal responsibility in the administrator for tax assessed to the company. However, it makes the administrator liable to pay tax on income, profits or gains of a capital nature derived by the administrator in their capacity as trustee (for tax purposes) of the company.
3. A recent decision of the High Court in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liquidation); Commissioner of Taxation v Muller [2015] HCA 48 determined that a trustee or agent will have no obligation to retain money to pay tax under paragraph 254(1)(d) of the ITAA 1936 until an assessment has been issued in respect of the relevant income, profits or gains
4. Consequently, You as the liquidator have no personal liability to pay tax on income that has come to You in your representative capacity until a Tax Return for the Consolidated Group has been lodged and an assessment has been issued.
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