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Edited version of your written advice
Authorisation Number: 1012977015746
Date of advice: 29 February 2016
Ruling
Subject: Administration costs
Question 1
Is the liquidator of the company required to retain the proceeds remitted from the disposal of the properties pursuant to section 254(1)(d) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2015
Year ended 30 June 2014
The scheme commences on:
The scheme has commenced
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.
In mid-20XX, the Supreme Court ordered that the company be wound up and that you be appointed Official Liquidator.
The company purchased a property during the 200X-0X financial year.
The company constructed a warehouse and office facility (Lot 1) on the property.
The property was subject to a two lot sub-division application.
Lot 2 of the proposed subdivision was leased to a third party by way of a lease agreement during the 20XX-XX financial year.
A conditional contract for sale was entered into for the sale of Lot 2 during the 20XX-XX financial year which was due to settle in mid-20XX or earlier by agreement.
You completed the sub-division and it was registered with the Land Titles office during the 20XX-XX financial year.
A contract of sale for Lot 1 was entered into in mid-20XX and settled in late 20XX.
It was agreed with the purchaser of Lot 2 that settlement occur during the 20XX-XX financial year.
No notice of income tax assessment has issued in relation to the capital gains tax events.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 254.
Reasons for decision
The High Court recently considered the application of section 254 of the Income Tax Assessment Act 1936 (Federal Commissioner of Taxation v. Australian Building Systems Pty Ltd (In liq) [2015] HCA 48; (2015) 90 ALJR 151).
That case involved a liquidator selling an asset of a company in liquidation. The question arose regarding whether section 254 of ITAA 1936 obliged the liquidator 'to account' to the Commissioner for any capital gains tax liability out of the proceeds of sale of the asset. The court found that retention obligation only applies where an assessment has first issued in respect of the capital gain.
While a liquidator does not have a specific obligation to retain upon the mere happening of a CGT event (the sale of a property), a prudent trustee would be entitled to retain an amount until the income tax positon had become certain by way of an assessment being made: (Logan J at [31] 2014 ATC 20-444).
The court also noted the application of Corporations Law to this situation. Section 556 of the Corporations Act 2001 provides priority repayment for the costs, charges and expenses of a winding up, including the remuneration of a company liquidator and income tax assessed post-liquidation. Given this priority, it would be prudent of a liquidator to provide for an anticipated tax liability from any property sale proceeds.