Edited version of private advice

Authorisation Number: 1051739740743

Date of advice: 25 August 2020

Ruling

Subject: Income tax and gst lodgments

Question 1

Is Party X required to prepare income tax returns in relation to income derived for or on behalf of Entity X or each party?

Answer 1

No.

Question 2

Is Party X required to lodge income tax returns in relation to income derived for Entity Y?

Answer 2

Yes.

Question 3

Is Party X required to retain funds to meet income tax obligations?

Answer 3

Yes for the entity in liquidation.

Question 4

Is the liquidator required to give the Commissioner a GST return (business activity statement) on behalf of the partnership in accordance with section 31-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer 4

No for partnership. Yes for the company in liquidation

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

On Month X 20XX Party X was appointed as a result of a winding up application made by the Commissioner against you in relation to failure to pay a demand for outstanding tax.

You advised that you entered into an Agreement with a number of entities as required under the Agreement.

Under the terms of the Agreement, you were appointed to:

·         Carry on and conduct the aggregation business as agent for and on behalf of Entity X.

·         Enter into contracts and arrangements with third parties in connection with the aggregation business, including contracts with Entity X's bankers, members of Entity X's network and key institutions.

·         Be subjected to the direction and control of Entity X

·         Manage, administer and collect all commissions as agent for and on behalf of Entity X.

There are several inconsistencies between the Agreement and the factual reality of the relationships between you and Entity X. Specifically:

·         The initial period recorded in the Agreement was for a number of years, however you advised that the agency relationship between you and Entity X continued notwithstanding expiry of the initial period; and

·         The Agreement contemplates that you would raise invoices on behalf of Entity X for service fees. You advised that this never occurred, and no service fees were ever paid by Entity X or charged by you congruent to the agreement.

The aggregation business was conducted as follows:

·         Entity X entered into referral arrangements with referrers under which it agreed to pay those referrers a commission when they referred borrowers to the aggregation business. The referrers only ever transacted with you;

·         You entered into agreements with financial institutions wherein it agreed to refer borrowers to those institutions in exchange for commissions based on the value of the loans placed with the institution by the borrowers. The financial institutions only ever transacted with you; and

·         Once a loan to a borrower was approved by a financial institution and loan monies released, the financial institution would pay a commission to the aggregation business, and the aggregation business would pay a portion of that commission to the referrer.

The aggregation business received a combination of upfront and trailing commissions from financial institutions and continues to receive commissions into a number of bank accounts.

Since Entity X purchased the aggregation business, you have prepared and lodged Entity X's income tax returns on behalf of Entity X. You advised that the other entities prepared their own individual tax returns based on Entity X's income.

Prior to Month X 20XX, Business Activity Statements (BAS) for the aggregation business were prepared by Entity X using Entity X's ABN.

From Month X 20XX, you reported revenue of the aggregation business by lodging BAS using your own ABN. You advised that these BAS were prepared and lodged with your consent by your external accountant.

On Month X 20XX the Commissioner issued a demand to you in relation to $X in outstanding tax associated with BAS lodgements in your ABN since Month X 20XX. You were unable to meet this obligation and was subsequently placed into liquidation.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 254

A New Tax System (Goods and Services Tax) Act 1999 section 31-5

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-B

Taxation Administration Act 1953 (TAA) section 444-30 of Schedule 1

Reasons for decision

Income Tax

The Commissioner requires the liquidator to lodge any returns relating to periods prior to appointment of the liquidator after having regard to the following factors:

·         The prospect for, and likely size of a dividend being paid to unsecured creditors;

·         the likelihood that the return would, if lodged, reveal an increase in the tax liabilities owed to the Commissioner;

·         the availability of books and records which would make it possible to prepare the return;

·         the likelihood that the liquidator's cost of preparing those returns would be covered by the assets of the liquidated company without resulting in an inordinate adverse impact on other creditors; and

·         the wider community benefits of having the returns lodged.

Furthermore, section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) requires liquidators, receivers and administrators to prepare and lodge income tax returns for the period in an income tax year from the date of their appointment. Liquidators, receivers and administrators as trustees for tax purposes, are responsible for accounting for income, profits or gains derived in their capacity as liquidator, receiver or administrator.

The liquidator is required to prepare the income tax returns and retain funds to meet any financial obligations in relation to income derived for the entity for which they have been appointed liquidator.

It follows that the liquidator is required to retain funds to meet income tax obligations.

GST

Section 31-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) requires any entity which is registered, or required to be registered for GST to lodge a GST return (business activity statement) which takes into account taxable supplies and importations, creditable acquisitions and adjustments for each tax period.

Generally, Subdivision 153-B of the GST Act operates to deem supplies made by an agent on behalf of a principle to be treated as a supply by the principal to the agent and a separate supply by the agent to the third party. Similarly, an acquisition by a principal through an agent from a third party may be treated as an acquisition by the agent from the third party and a separate acquisition by the principal from the agent.

Where Subdivision 153-B applies to supplies and acquisitions made by an agent, the agent must report the supplies and acquisitions on its business activity statement and the principal must report the supplies and acquisitions separately on its own business activity statement. Where Subdivision 153-B doesn't apply to supplies and acquisitions made through an agent, all of those supplies and acquisitions are reported on the business activity statement of the principal. The agent is not required to report any of those transactions on its own business activity statement.

Neither the GST Act, nor the Taxation Administration Act 1953 (TAA) require an agent to lodge a GST return on behalf of the principal. Although section 444-30 of Schedule 1 to the TAA imposes obligations on the partners in a partnership, this does not extend to require an agent or liquidator of that agent.

Therefore, the company in liquidation is not required to lodge a GST return on behalf of the partnership. Consequently, the liquidator is also not required to lodge a GST return on behalf of the partnership.