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Edited version of your private ruling
Authorisation Number: 1012473590019
Ruling
Subject: CGT - assessability of bankrupt individual
Question 1
Have you, as an insolvent, made a capital gain on disposal of the property?
Answer
Yes
Question 2
Are you assessable for the capital gain made on disposal of the property?
Answer
Yes
Question 3
Is the trustee required to withhold an amount from the disposal of the property on your behalf for payment of any tax liability arising from the capital gain?
Answer
No
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
The trustee in bankruptcy was appointed on XX date.
Your property was sold under Contract for Sale dated YY date.
A capital gain of approximately $XX was made from the sale of your property.
You have not yet been released from bankruptcy.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 106-30
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1936 section 254(1)
Reasons for decision
Detailed reasoning
Assessability of the capital gain
Section 106-30 of Income Tax Assessment Act 1997 (ITAA 1997) states that the vesting of assets in a trustee under the Bankruptcy Act 1996 is ignored for capital gains tax (CGT) purposes. The effect of this is that the asset is still considered to be owned by the insolvent person, even though the asset is vested in the trustee. The acts of the trustee in relation to the vested asset are taken to be those of the insolvent person.
Consequently, no disposal takes place on the vesting of the asset in the trustee and a disposal of the asset by the trustee is considered to be a disposal by the insolvent person.
In your case, CGT event A1 occurred on the date of the Contract for Sale of your property (section 104-10 of the ITAA 1997). The liability for CGT on the capital gain made on the sale is borne by you, in the year of income in which the disposal occurs, and is not assessable to the trustee.
CGT liability
Section 254(1) of the Income Tax Assessment Act 1936 (ITAA 1936) operates to impose an obligation on a trustee (amongst others) in relation to any tax liability it derives in its representative capacity, or in respect of its agency. This provision may require the trustee to retain a sufficient amount of funds on account of any tax liability on gains or profits derived in such capacity, and account to the Commissioner for this amount.
As the CGT provisions treat the acts of the Trustee as acts of the bankrupt individual we would consider that any capital gain is not derived by the Trustee in their representative capacity or as your agent.
Accordingly, section 254(1) does not operate to impose an obligation on the Trustee to retain and remit any amount in relation to a potential CGT liability arising on the sale of your property.
The Trustee of your bankrupt estate has no obligation to withhold or remit funds to the ATO on account of the CGT liability arising from the sale of your property.