Edited version of your written advice

Authorisation Number: 1012872313023

Date of advice: 3 September 2015

Ruling

Subject: Appointment of a trustee

Question and Answer

Is the receiver of the Trust required by section 254(1) of the Income Tax Assessment Act 1936 to withhold amounts from the distribution of the income of the trust for the financial year ended 30 June 2015?

No

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Trust overview

The Company #1 is the trustee of The Trust #1.

The Trust #1 was established by Trust Deed dated in 200X.

The Company #1 in their capacity as Trustee of The Trust acquired Property #1.

The Trust #1 became the registered proprietor of Property #1 in 200X.

To the best of your knowledge:

1.1. The only issued units are ordinary units in The Trust #1 (Trust #1 unitholders)

1.2. The following persons currently hold units in The Trust #1:

1.2.1. Unitholder1 (X units);

1.2.2. Unitholder2 (X units);

1.2.3. Unitholder3 (X units);

1.2.4. Unitholder4 (X units)

1.2.5. Unitholder5 (X units)

1.3. The Trust#1 unitholders are all residents of Australia;

1.4. None of The Trust #1 unitholders are under any legal disability;

1.5. Property #1 was acquired for purpose of resale at a profit, and accordingly, has at all times been treated as a revenue asset, rather than a capital asset; and

1.6. All of the income of The Trust #1 has an Australian source.

Appointment of Receiver

Due to a dispute between the Trust#1 unitholders, The Trust #1 Trustee and various related parties, you were appointed as receiver in relation to The Trust#1 as receiver of Property #1 for the purpose of selling Property #1 and vesting The Trust #1.

The Trust#1 is solvent.

Sale of Property

In 20XX, you entered into a contract to sell Property#1 which settled in 20XX.

Financial Accounts and Profits

The Trust #1 derived income consisting of rental income and profit from the sale of Property#1.

Trust Deed Provisions

The Trust Deed for The Trust #1 was varied by way of Deeds of Variation with the following provisions:

a) Determination of net income: the net income of The Trust #1 is determined pursuant to clause 10(1)(i). If the Trustee does not make a determination under clause 10(1)(i) before 11:30pm on the last day of the financial year, the net income of the Trust will be the 'net income' as defined by section 95 of the Income Tax Assessment Act 1997.

b) Distribution of Net Income: as at 11:30pm on the last day of the financial year, the net income of The Trust #1 (less recouped losses, reserves set aside and accumulation and subject to any special rights of units on issue) shall be distributed or applied by The Trust #1 Trustee to the entities that are registered as unitholders as at 11:30pm on the last day of the financial year.

Distribution per the Trust Deed

As receiver you now propose that once any remaining creditors of the Trust #1 are paid, the Trust #1 Surplus will be distributed to the Trust #1 unitholders.

Relevant legislative provisions

Section 6(1) of the Income Tax Assessment Act 1936

Section 95A of the Income Tax Assessment Act 1997

Section 96 of the Income Tax Assessment Act 1997

Section 97 of the Income Tax Assessment Act 1997

Section 98 of the Income Tax Assessment Act 1997

Section 99 of the Income Tax Assessment Act 1997

Section 99A of the Income Tax Assessment Act 1997

Section 254(1) of the Income Tax Assessment Act 1997

Reasons for decision

Trustee

A trustee is defined in section 6(1) of the Income Tax Assessment Act 1936 as including, in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law:

(1) an executor or administrator, guardian, committee, receiver, or liquidator

(2) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability.

You are an appointed receiver and therefore meet the definition of a Trustee.

Trustee obligations

A trustee is responsible as taxpayer for things required by the Act in respect of income, profits or gains of a capital nature, derived by the trustee in their capacity by virtue of the agency. This includes the payment of tax [section 254(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)].

Trustees are authorised and required to retain funds received in their capacity in order to pay tax "which is or will become due" in respect of the income, profits or gains realised in that capacity (section 254(1)(d)of the ITAA 1997).

Assessability of a Trustee

A trustee holds the legal interest in trust property and derives the trust income, Division 6 of the ITAA 1997 does not seek to impose tax on the net income of the trust estate in the hands of the trustee, withstanding certain conditions. Section 96 of the ITAA 1997 reinforces this principle by ensuring that the trustee is not assessable in respect of the trust income derived by the trustee (Section 96 of the ITAA 1997).

A trustee's tax liability under Division 6 of the ITAA 1997 is generally confined to situations where no beneficiary is presently entitled to trust income, where a presently entitled beneficiary is either under a legal disability, or is a non-resident with Australian source income. All of the beneficiaries are presently entitled, Australian residents with no legal disability (Sections 98, 99 and 99A of the ITAA 1997).

Section 95A(2) of the ITAA 1997 provides that, where a beneficiary has a vested and indefeasible interest in any of the income of the trust estate but is not presently entitled to that income, the beneficiary is deemed to be presently entitled to that income.

Section 97 of the ITAA 1997 provides, in effect, that where a beneficiary is presently entitled to a share of the income of a trust estate and is not under a legal disability the beneficiary is liable to be assessed on so much of that share of the net income as is attributable to Australian sources.

Conclusion

In your capacity as appointed receiver, hence the Trustee of the Trust, you have indicated to us in your facts that the corpus/estate has vested. Therefore by virtue of Division 6 of the ITAA 1997, a resident beneficiary who is presently entitled with no legal disability is liable to assessment and you in your capacity as Trustee are not required under section 254(1) of the ITAA 1997 to withhold amounts from the Trust.