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Edited version of your private ruling
Authorisation Number: 1012511715487
Ruling
Subject: Income Tax Administration lodgement and tax obligations receivers and managers
Question 1
Are the jointly appointed receivers and managers over the company in its own right and as trustee for the Trust, liable pursuant to section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) to make a return and be assessed with respect to the profits made by the Trust on the disposal of trading stock during the period of their appointment?
Answer
No.
Are the jointly appointed receivers and managers over the company in its own right and as trustee for the Trust, liable pursuant to section 254 of the ITAA 1936 to retain from the proceeds of the disposal of the trading stock of the Trust, sufficient funds to pay tax in respect of the income from the disposal?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commences on:
The scheme commenced on the appointment of the jointly appointed receivers and managers over the company in its own right and as trustee for the Trust.
Relevant facts and circumstances
Receivers and managers were appointed over a company in its own right and as trustee for a Trust by Deed of Appointment with a bank.
The Deed of Appointment states that 'The Receivers shall be deemed to be the agent of the Chargor and the Chargor shall alone be responsible for the Receiver's acts and defaults as provided by the Charge.'
The Chargor is defined as 'the company in its own right and as trustee for the Trust…'
Charge is defined as is relevant as 'Charge means a fixed and floating charge provided by the Chargor in its own right and as trustee for the rust dated … securing all the rights, property and undertaking of the Chargor in its own right and as trustee for the Trust of whatever kind and wherever situated and whether present or future.'
Property of the Chargor included trading stock.
The receivers and managers have to date disposed of some of that trading stock.
A valid trust distribution has been made prior to 30 June 2013, making a single beneficiary presently entitled to the whole of the income of the trust.
The company as trustee of the Trust will not be assessed for the year ended 30 June 2013 under either section 98, 99 or 99A of the ITAA 1936.
Relevant legislative provisions
Section 254 of the ITAA 1936.
Reasons for decision
Question 1
Summary
The receiver and managers are not required to make a return and be assessed with respect to the profits made by the Trust on the disposal of trading stock during the period of their appointment
Detailed reasoning
Subsection 254 of the ITAA 1936 as is relevant reads as follows;
SECTION 254 AGENTS AND TRUSTEES |
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254(1) |
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With respect to every agent and with respect also to every trustee, the following provisions shall apply:
(a) He or she shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature, derived by him or her in his or her representative capacity, or derived by the principal by virtue of his or her agency, and for the payment of tax thereon. |
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(b) He or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his or her representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other. | |
Clause 3.2 of the Deed of appointment of receivers and managers provides that the receivers and managers are deemed to be the agent of the Chargor. For the purposes of section 254 of the ITAA 1936, the receivers and managers in their capacity as receivers and managers are agents of the Chargor, the Company.
The receivers and managers have to date disposed of trading stock owned by the company as trustee of the Trust.
The income or profits from the disposal of the trading stock is derived by the principal (the Company) by virtue of the agency of the receivers and managers (Visboard v Federal Commissioner of Taxation (1943) 68 CLR 354 per Latham CJ, Starke J; White v Metcalf [1903] 2 Ch 567 at 571).
The company as trustee of the Trust will not be assessed for the years ended 30 June 2013 and 30 June 2014 under either section 98, 99 or 99A of the ITAA 1936. As discussed in answer to question 2, The receivers and managers as agent for the company will not be required to retain an amount for the payment of tax, nor will they be liable for the payment of tax in respect of the income.
On the basis of the facts and assumptions set out above it is clear that:
· the principal will not be liable to pay income in respect of the disposal of the trading stock by the receivers;
· the receivers will not be required to retain from the proceeds of the disposal of the trading stock sufficient funds to pay tax in respect of the tax liability of the sole beneficiary of the trust to whom trust income was distributed (see the answer to question 2 below).
Consequently, in these circumstances it is not considered necessary for receivers and managers to lodge a return in their capacity as an agent.
Question 2
Summary
The receiver and managers are not required to retain from the proceeds of the disposal of the trading stock sufficient funds to pay tax in respect of the income from the disposal.
Detailed reasoning
Subsection 254 of the ITAA 1936 as is relevant reads as follows;
SECTION 254 AGENTS AND TRUSTEES |
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254(1) |
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With respect to every agent and with respect also to every trustee, the following provisions shall apply:
(d) He or she is hereby authorized and required to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. |
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(e) He or she is hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he or she has retained, or should have retained, under paragraph (d); but he or she shall not be otherwise personally liable for the tax. | |
The Deed of appointment of receivers and managers provides that the receivers and managers are deemed to be the agent of the Chargor. For the purposes of section 254 of the ITAA 1936, the receivers and managers in their capacity as receiver and managers are agents of the Chargor.
Fermanis v Cheshire Holdings Pty Ltd 90 ATC 4201 confirms that section 254 does not of itself create a tax liability, the liability is derived from the provisions of the tax legislation such that if a tax liability is not otherwise to be drawn, then none is created by section 254.
The net (or taxable) income of a trust is assessed to either the beneficiaries or the trustee under the provisions in Division 6 of Part III of the ITAA 1936.
The company as trustee of the Trust will not be assessed for the years ended 30 June 2013 and 30 June 2014 under either section 98, 99 or 99A of the ITAA 1936.
As the receivers and managers act as agent for the company as trustee of the trust, and the company will not be liable for tax in respect of the income, profits or gains of the trust, they are not required to retain from the proceeds of the disposal of the trading stock of the Trust, sufficient funds to pay tax in respect of the tax liability of the sole beneficiary of the trust to whom trust income was distributed.