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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051201090098

NOTICE

This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

This notice must not be taken to imply anything about:

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of Advice: 10 March 2017

Ruling

Subject: Obligations of trustee in bankruptcy

Question 1

Will any capital gain realised on the sale of properties by the trustee in bankruptcy be assessable to the taxpayer under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Section 106-30(2) ITAA 1997 means that the acts of the trustee in bankruptcy in relation to vested property are taken to be the acts of the Bankrupt. The sale of property by the trustee in bankruptcy is considered to be a disposal by the bankrupt individual.

Question 2

Is the trustee in bankruptcy required to lodge an income tax return or make any other disclosure to the ATO in respect of any capital gain made on the sale of properties?

Answer

No. The obligation to lodge remains with the bankrupt individual.

Question 3

Will any capital gain realised on the sale of properties by the trustee in bankruptcy be assessable to the trustee of the Bankrupt Estate?

Answer

No. The liability for any CGT on the capital gain on disposal of the property remains with the bankrupt individual in the year of the CGT event.

Question 4

Does the trustee in bankruptcy have an obligation to retain funds under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of any CGT liability arising on the sale of properties?

Answer

No.

Question 5

Does the trustee in bankruptcy have an obligation to retain funds under section 254 of the ITAA 1936 in respect of assessable interest income arising for the Bankrupt Estate?

Answer

No. Section 106-30(2) of the ITAA 1997 applies such that there is no vesting of property in the Trustee and accordingly the Trustee is not liable for any assessable interest in the relevant year.

This ruling applies for the following period(s)

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on

1 July 2014

Relevant facts and circumstances

Prior to the appointment of a trustee in bankruptcy, the Bankrupt had 100% ownership in properties.

A trustee in bankruptcy was appointed under the Bankruptcy Act 1966.

In their capacity as trustee in bankruptcy, the trustee sold properties.

A capital gain was realised on the sale of each of the properties.

Assessable interest income was also earned from funds deposited by the trustee in bankruptcy.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Subsection 104-10(7)

Income Tax Assessment Act 1997 Section 104-30

Income Tax Assessment Act 1997 Section 106-30

Income Tax Assessment Act 1997 Subsection 106-30(2)

Income Tax Assessment Act 1936 Section 254

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

Taxation Administration Act 1953 Division 12

Bankruptcy Act 1966

Reasons for decision

Section 106-30 ITAA 1997

Section 106-30(2) ITAA 1997 provides that for the purposes of Part 3-3 of the ITAA 1997 which deals with capital gains and losses, the vesting of an individual's CGT assets in the trustee under the Bankruptcy Act 1966 or under a similar foreign law is ignored.

Section 106-30(2) ITAA 1997 provides that:

This Part, Part 3-3 and Subdivision 328-C apply to an act done in relation to a CGT asset of an individual in these circumstances as if the act had been done by the individual (instead of by the trustee etc.):

(a) As a result of the bankruptcy of the individual by the Official Trustee in Bankruptcy or a registered trustee, or the holder of a similar office under a foreign law;

(b) By a trustee under a personal insolvency agreement made under Part X of the Bankruptcy Act 1966, or under a similar instrument under a foreign law;

An example is provided in the legislation as below:

A CGT asset of an individual vests in a trustee because of the bankruptcy of the individual. No CGT event happens as a result of the vesting.

The trustee later sells the CGT asset. Any capital gain or loss is made by the individual, not the trustee.

As a result of section 106-30 of the ITAA 1997 any capital gain or loss which arises from the sale of a CGT asset by a trustee in bankruptcy appointed under the Bankruptcy Act 1966 is attributed to the individual and not to the trustee. The section applies to acts of the Official Trustee in Bankruptcy or a registered trustee, or the holder of a similar office under a foreign law.

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