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Edited version of your written advice
Authorisation Number: 1051457360825
Date of advice: 21 November 2018
Ruling
Subject: Liquidator’s obligations – section 254
Question
Are the Liquidators required under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) to lodge an income tax return and pay any income assessed to the Company for the 2009 income year?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ending 30 June 2019
The scheme commences on:
31 December 1981
Relevant facts and circumstances
The Company was the former trustee of a trust (the Trust).
The Trust was established a number of years ago and the Company subsequently appointed as Trustee of the Trust.
The Company ceased to be the trustee on a specified date, being the date a liquidator was appointed.
The Company had formerly guaranteed the debts of another entity in liquidation (the Debtor).
The Company granted a mortgage over certain property as security for those debts.
The Debtor was placed into external administration and on that day controllers (the Controllers) were appointed to act as agents for the bank as mortgagee in possession of the Property.
The Property was sold and settled by the Controllers for a specified amount.
The Controllers put some proceeds of the sale price to the Trustee Company’s benefit by reducing their debt facility.
No other money from the sale was given to the Trust.
The Property was a post-CGT asset of the trust.
The Trust did not lodge a tax return for the year in which the sale occurred.
The Company as Trustee did not resolve to distribute the Trust income for the relevant income year.
The Company did not lodge a tax return for the relevant income year.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 163
Income Tax Assessment Act 1936 section 254
Reasons for decision
Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) imposes obligations on every trustee in respect of any income or any profits or gains of a capital nature derived by him or her in his or her representative capacity.
A liquidator is a trustee for the purposes of section 254 ITAA 1936 in accordance with the definition of ‘trustee’ in section 6 of the ITAA 1936.
Section 254 ITAA 1936 is triggered at the moment the trustee derives the income, profit or gain in his or her representative capacity. This representative capacity begins at the time of appointment and generally does not imply obligations prior to that date in respect of lodging tax returns and being liable for tax for prior periods.
Matters we have not ruled on
We have not ruled on all of your questions. Here, we list each question that we have not been able to rule on, and explain why.
Notwithstanding the answer to Question 1, are the Liquidators required to notify the Commissioner that the Liquidators believe the Commissioner has understated his claim as a creditor of the Company?
Your application for a private ruling is not valid because it is not in a form approved by the Commissioner.
As it is currently posed, this question is not valid because it does not identify a relevant provision for tax purposes. Indeed this is why we had suggested an alternative framing of the issue on which the Commissioner is to rule. However, before any taxation provision is considered, in the context of insolvency practitioners any obligation of this nature would normally arise from more general principles. That is, to act honestly for the benefit of all creditors impartially. Guidance can be obtained from Autolook Pty. Ltd. 83 ATC 4604, where the Supreme Court considered a similar question posed by a liquidator. In his judgment Needham J stated
It is clear that a liquidator has a duty to act impartially and a duty to discover who are the creditors of the company…[and] to act honestly and impartially.
It is my opinion that if a liquidator were aware that a creditor had understated his claim he would be acting less than honestly and impartially if he distributed the assets available for payment of creditors without informing the creditor of the facts known to him. In doing so he would be acting on what he knew was a false basis and he would be preferring the other creditors to the extent that the one creditor had understated his claim.
Further, whilst we note that you are not obliged to lodge tax returns for those years where your client was in liquidation but prior to your appointment as liquidator, the Commissioner would require all outstanding returns before any liquidator clearance certificate issues. Those returns would need to be lodged based on your understanding of your clients’ tax position during those years.