Edited version of private ruling

Authorisation Number: 1011833229847

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Ruling

Subject: Tax liability of receivers

Question

Does subsection 254(1) of the Income Tax Assessment Act 1936 (ITAA 1936) apply to impose a tax liability on you, as receiver and manager, in the event that there is any tax liability for company A in relation to the net capital gains made on the disposal of properties?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You were appointed receiver and manager of certain properties of which company A was the registered proprietor:

The properties were owned by company A in its capacity as trustee of several trusts.

A liquidator was also appointed for company A.

By deeds of appointment and removal of trustee, company A was removed as trustee of the trusts and replaced, in each instance, by company B.

Company A did not execute a transfer of the properties to company B.

The properties were subsequently sold by you as receiver and manager of company A.

The sale of the properties gave rise to net capital gains in the trusts for the income year which caused the trusts to have taxable incomes for the income year.

The trustees of the trusts did not make distributions of net income prior to the end of the income year.

The trust deeds for the trusts:

Define the income of the trust to be the taxable income as determined in accordance with section 95(1) of the ITAA 1936.

Provide for takers in default in the event that the trustee does not make a distribution of the net income prior to 30 June.

The majority of the takers in default are minors.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 254

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Section 254 of the ITAA 1936 applies to an entity that is an agent or trustee for the purposes of the ITAA 1936 and 1997, and contains provisions which describe the duties and obligations of persons who act as the agents or trustees of taxpayers.

A receiver and manager satisfies the definition of 'trustee' in subsection 6(1) of the ITAA 1936.

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

Therefore, section 254 of the ITAA 1936 does not create a personal responsibility in you for tax assessed to company A. However, it makes you liable to pay tax on income, profits or gains of a capital nature derived by you in your capacity as trustee (for tax purposes) of company A.

Paragraph 254(1)(d) of the ITAA 1936, to that end, authorises and requires you to retain out of any money that is received in that representative capacity, an amount sufficient to pay that tax. You are then under paragraph 254(1)(e) of the ITAA 1997 made personally liable for the tax assessed in respect of the income, profits or gains resulting from that representative capacity to the extent that money has been retained or should have been retained.

Consequently, you have a personal liability to pay income tax as receiver and manager for company A. However, that liability only extends to money that has come to you in that representative capacity and which you have been authorised and required to retain, and which has been retained or should have been retained for the purpose of paying the income tax.

The liability to pay tax is created under all the relevant provisions of the income tax legislation (in respect of income, capital gains etc.) and section 254 of the ITAA 1936 works in conjunction with these provisions to provide that a receiver and manager is liable in relation to any such tax liability that arises in the course of their administration.