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Edited version of your written advice
Authorisation Number: 1051466708542
Date of advice: 3 January 2019
Ruling
Subject: Liquidator obligations and capital gains tax
Question 1
Is the liquidator required to an lodge an income tax return for the year ended 30 June 20XX?
Answer
Yes.
Question 2
Is the liquidator required to report the sale of the property and any corresponding capital gain to the Australian Taxation Office (ATO)?
Answer
Yes, in the tax return for the year ended 30 June 20XX.
Question 3
Is the company (in liquidation) subject to Capital Gains Tax (CGT) regarding the sale of the property in the 20XX financial year?
Answer
Yes.
Question 4
Will the company being in liquidation prevent the company from accessing their carried forward losses?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 20XX
Relevant facts and circumstances
A liquidator was appointed to the company.
A property owned by the company was sold by the liquidator in the 20XX income year. The liquidator set aside funds for the potential tax liability pertaining to the capital gain.
The company had a carry forward loss prior to the 20XX income year.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 254
Income Tax Assessment Act 1936 paragraph 254(1)(b)
Income Tax Assessment Act 1997 section 106-35
Reasons for decision
Question 1 – Liquidator’s obligation to lodge an income tax return
Paragraph 254(1)(b) of the Income Tax Assessment 1936 (ITAA 1936) requires the liquidator to lodge an income tax return in the income year in which a capital gain has been derived in their representative capacity. A liquidator is answerable as the taxpayer for things required to be done under the tax law in respect of capital gains which are derived by the liquidator in their representative capacity.
Question 2 – Reporting of the capital gain to the ATO
The liquidator is required to report the capital gain to the ATO. The sale can be reported by the liquidator via lodging the company tax return for the year.
Question 3 – Liability to CGT
As per section 106-35 of the Income Tax Assessment Act 1997 (ITAA 1997), the company (in liquidation) is subject to CGT regarding the sale of property. For the purpose of capital gains, the vesting of a company’s CGT assets in a liquidator is ignored. This means that any capital gain made on selling of a CGT asset is considered to be made by the company, not by the liquidator.
Question 4 – The company’s ability to use carried forward income losses from the years prior to liquidation
The effect of sections 165-208 and 165-250 of the ITAA 1997 is that a company in liquidation can still utilise carried forward losses if they satisfy the relevant loss tests. The fact that that an external administrator has been appointed does not mean they cannot potentially use carried forward losses.