Edited version of your written advice

Authorisation Number: 1051426439277

Date of advice: 21 December 2018

Ruling

Subject: Liability to income tax and/ or capital gains tax as statutory trustees

Question 1

Did you as Statutory Trustees make a capital gain from the sale of the properties?

Answer

No

Question 2

Would you as Statutory Trustees be required to lodge a trust tax return?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

16 December 20XX

Relevant facts and circumstances

You were appointed as statutory trustees for sale by the Court. Your appointment was over a number of residential properties (the properties).

The properties were owned by a development trust.

Pursuant to the Court order the properties vested in you on your appointment with the net proceeds of sale to be distributed by you to the creditors of the development trust (Company A and Company B).

Company A and Company B both went into liquidation.

You disposed of the properties and you incurred expenses in relation to their disposal. In the period of your role as statutory trustees you were responsible for the collection of the rental income generated by one the properties.

Prior to appointment of statutory trustees

You were appointed Liquidators of Company A and Company B (creditors) in mth/20XX. At that time the creditors were owed by the development trust for a significant amount. The creditors commenced Court proceedings against the development trust prior to the appointment of a liquidator. You as the appointed Liquidators continued with the legal action.

The development trust paid a certain amount into Court forming part of funds available to satisfy legal claims by the creditors.

● Prior to trial the Liquidators reached a settlement with the development trust whereby the Liquidators received an amount from the funds held in Court.

The Deed of Settlement provided among other things:

● Your appointment as statutory trustees to sell the properties and distribute the net proceeds of sale to the Liquidators;

● The development trust would be required to pay any GST on the sale; and

● The statutory trustees will receive all income generated by the properties.

Appointment as Statutory Trustees and Appointment as Liquidators

It is noted that your appointment as Statutory Trustees is a distinct and separate role to your appointment as Liquidators of the creditor companies A and B.

Your tax agent advised that the rental income net of expenses or the proceeds from sale of the properties were to be distributed in accordance with the Deed of Settlement.

As Statutory Trustees you have not requested a tax file number and/ or an Australian business number for this role.

You do not require advice in regards to any taxation consequences relating to your role as Liquidators.

Relevant legislative provisions

Income Tax Assessment Act 1936

section 161

subsection 161(1)

Income Tax Assessment Act 1997

subsection 104-10(1)

paragraph 104-10(3)(a)

subsection 104-10(4)

section 104-55

section 110-25

paragraph 110-25(2)(a)

section 110-35

paragraph 116-20(1)(a)

Reasons for decision

Question 1

Pursuant to the order made by the Court appointing you as Statutory Trustees for the sale of the properties you were empowered to be the proprietors of the properties.

CGT event A1 happened to you when you disposed of the properties – subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997). The time of the event was when you entered into the contract for the disposal – paragraph 104-10(3)(a). You made a capital gain if the capital proceeds from the disposal were more than the cost base of the properties. You made a capital loss if those capital proceeds were less than the reduced cost base of the properties – subsection 104-10(4).

Your capital proceeds were the money you received in respect of the disposal of the properties – paragraph 116-20(1)(a) of the ITAA 1997.

In your case you undertook an obligation to pay the net proceeds from the disposal of the properties to the creditor companies A and B in satisfaction of outstanding claims as provided for in the Deed of Settlement. As such the first element of your cost base would be the net proceeds from the disposal of the properties – paragraph 110-25(2)(a) of the ITAA 1997. The second element of your cost base would be the incidental costs as specified in section 110-35 which you incurred relating to the disposal of the properties – subsection 110-25(3). You may have incurred other expenses forming part of the cost base within the rules in section 110-25.

Therefore as your capital proceeds were identical to your cost base, you did not make any capital gain from the disposal of the properties.

It is noted that CGT event E1 in section 104-55 of the ITAA 1997 did not happen in this case because the trust was created by an order of the Court, not by declaration or settlement. As such it is not the type of trust in which that section applies.

Question 2

Subsection 161(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that:

Every person must, if required by the Commissioner by notice published in the Gazette, give to the Commissioner a return for a year of income within the period specified in the notice.

The Legislative Instrument: Notice of Requirement to Lodge a Return for the Year of Income Ended 30 June 2018 provides at clause 3.2 that under section 161 and other related provisions of the ITAA 1936, the Commissioner requires every person described in any of Tables A, B, C, D, E, F, G, H, I, and J to give him a return for the income year. The Legislative Instrument lists the lodgement obligations of different entities.

Table E of the Legislative Instrument refers to every trustee of a trust estate not covered by Tables K, L, M or O that derived income (including capital gains) during the income year. It states among other things that the return must be lodged by the trustee resident in Australia.

In your role as statutory trustees, despite you did not make any capital gain, you derived rental income and interest income as shown in your trust account listing and you are not covered by Tables K, L, M or O of the Legislative Instrument.

Therefore you are required to lodge a trust taxation return under section 161 of the ITAA 1936 and the Legislative Instrument.

Note: The requirement to lodge does not depend on whether or not you have a tax liability for the income year.