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Ruling
Subject: taxation consequences of trusts
Question 1
Are you required to lodge trust tax returns for the statutory trust for sale?
Answer
No
Question 2
Are you required to withhold amounts from the property sale proceeds you remit to the property owners?
Answer
No
Question 3
As joint trustee for the statutory trust for sale, are there any other obligations that arise for you under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936)?
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commences on:
1 November 2011
Relevant facts and circumstances
You were appointed as joint Trustee over the Property and were advised to sell the property under Division 6 Part 4 of the (NSW) Conveyancing Act 1919.
A clause of the court order requires that upon the sale of the Property you in your capacity as trustee, pay the proceeds as follows:
a) the agent's commission and other costs of sale,
b) the legal expenses of the trustees in respect of the sale
c) the legal expenses of transferring the property to the purchaser
d) all rates, taxes and insurance and other outgoing on the property
e) the payment of the costs of the trustee, and
f) the balance of the monies to be divided between the plaintiff and the defendants in four equal portions
i. Plaintiff
ii. Defendants
The court made further orders confirming that the Plaintiff and each of the Defendants jointly or severally, could bid or buy the Property and if any of them were the successful purchaser then he or they shall be entitled on settlement to set off or account for the purchase monies against heir ultimate share or shares in the net proceeds.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1),
Income Tax Assessment Act 1936 Section 161,
Income Tax Assessment Act 1936 Section 254,
Income Tax Assessment Act 1997 Subsection 104-10(2),
Income Tax Assessment Act 1997 Subsection 104-55,
Income Tax Assessment Act 1997 Subsection 110-25(2) and
Income Tax Assessment Act 1997 Subsection 116-20(1)
Reasons for decision
Subsection 254(1) of the ITAA 1936 states that an agent or trustee is answerable as taxpayer for the doing of all such things as are required to be done by virtue of the ITAA 1936 in respect of income, or any profits or gains of a capital nature, derived by the agent or trustee in his or her representative capacity or derived by the principal by virtue of the agency.
In Dixon v Roy (1991) 5 BPR 11,655, Young J held that trustees for sale appointed under section 66G of the Conveyancing Act 1919 have all the ordinary duties and obligations of trustees, including to get the best price, to make appropriate inquiries and to take expert advice and to act on it if they consider that appropriate [see also Goldberg v Goldberg [2000] NSW SC 399 (Young CJ in Eq)].
You responsibilities as Trustee are similar those of trustees appointed under section 66 of the Conveyancing Act 1919. Accordingly, you are a trustee for the purposes of the definition of 'trustee' in subsection 6(1) of the ITAA 1936.
An agent or trustee is required to furnish tax returns and to retain out of money which he or she receives as agent or trustee an amount sufficient to pay tax that is or will become due in respect of the income or such profits or gains. He or she is personally liable for any tax payable to the extent of any amount that has been retained or should have retained, but not otherwise.
When the CGT asset that comes into the possession of the statutory trust for sale is sold, CGT Event A1 happens to the trust. The cost base of the disposed asset under subsection 110-25(2) of the ITAA 1997 is 'the money you paid, or are required to pay, in respect of acquiring it' (my emphasis added).
As no income has been derived by the statutory in its income years of operation, there is no obligation upon you to lodge a trust tax return under section 161 of the ITAA 1936 (Table L of the legislative instrument that sets out lodgement obligations each income year states that a trust must have derived income for a lodgement obligation to arise). Further, there is no obligation to withhold amounts from the remittance of the sale proceeds as it is not a distribution of trust income. There is no other obligation the trustees must attend to under section 254 of the ITAA 1936.