Edited version of private advice

Authorisation Number: 1051970391484

Date of advice: 7 April 2022

Ruling

Subject: CGT - statutory trustee

Question 1

Did you make a capital gain as statutory trustee for the sale of the property located at XXXX?

Answer

No. CGT event A1 occurred when the statutory trustee sold the property. Subsection 110-25 (2) of the Income Tax Assessment Act 1997 (unless otherwise stated all further references are to this act) provides that the first element of the cost base is the total of the money you paid, or are required to pay, in respect of acquiring the property and the market value of any other property you gave, or are required to give, in respect of acquiring the asset. Section 110-35 provides that certain incidental expenses of buying or selling an asset can be included in the cost base.

Under the terms of the court order that appointed you as trustee you are required to distribute the proceeds of the sale of the property to the prior owners, less costs and expenses. It is reasonable to expect that the costs and expenses would be included in the cost base under s110-35. As such the capital proceeds will be equal to your cost base and there will be no capital gain.

Question 2

Are lease payments received for the property assessable income in the hands of the statutory trustee?

Answer

Yes. Rental income is income according to ordinary principles and included in your assessable income according to section 6-5. Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) provides that an agent or trustee is answerable as the taxpayer in respect of income derived in their representative capacity.

Question 3

Will you as statutory trustee be required to lodge an income tax return for the 2021-2022 income year?

Answer

Yes. Section 254 of ITAA 1936 requires that a trustee will furnish the necessary returns in respect of any income derived in their representative capacity.

Subsection 161(1) of ITAA 1936 also 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.

In draft legislative instrument LODGE 2022/D1, the Commissioner requires at table E that every trustee that derived income during the income year must lodge a return, unless covered by tables K, L, M, or O.

As you received rental income during the year, and are not covered by tables K, L, M, or O, you are required to lodge a trust return.

Question 4

Is GST payable by you as statutory trustee on receipt of lease payments or sale of the property?

Answer

No. In order for the sale of the property to be a taxable supply, it must meet the definition of a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999.

Section 9-5 provides that you make a taxable supply if:

•         you make the supply for consideration

•         the supply is made in the course or furtherance of an enterprise that you carry on

•         the supply is connected with the indirect tax zone, and

•         you are registered or required to be registered for GST.

The issues to be considered in this case are:

•         whether the leasing or sale of the property is being made in the course or furtherance of an enterprise that the statutory trustee carries on, and if so

•         whether the statutory trustee is required to be registered for GST.

Although a part of the property is leased to a telecommunications entity, this was nothing more than the passive receipt of income. In such circumstances a tax law partnership existed consisting of the co-owners. As the statutory trustee held the property for the sole purpose of giving effect to the court order by selling it, there was no enterprise of leasing conducted by them.

On balance, we consider the activities were not conducted in the form of a business as they do not amount to significant commercial activity and the nature of the arrangement does not carry a commercial flavour.

Considering these factors, there is no enterprise or business being conducted by the statutory trustee in relation to this property sale.

As the statutory trustee is not carrying on an enterprise it is not necessary to consider whether it should be registered for GST.

This private ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commences on:

xx June 20XX

Relevant facts and circumstances

You were appointed by the District Court of Queensland as Statutory Trustee for the sale of a property on xx June 20XX, pursuant with section 38 (1) of the Property Law Act 1974 (Qld).

The court orders required you to hold the proceeds of the sale on trust for distribution between the prior owners. Upon agreement between the prior owners, or making of a further court order, you were to distribute the net capital proceeds after satisfaction of costs and expenses, including your own costs and professional fees.

The property is a vacant lot with a telecommunication tower upon it. A ten-year lease with the owner of the tower provides for rent to be paid in advance in September of each year. The payment due in the 20XX-XX income year was made during the period of your trusteeship.

The trustee entered a contract for sale in the 20XX-XX income year with settlement occurring in the 20XX-XX income year.

The rental proceeds were distributed as part of the settlement upon the sale of the property.

You are holding the net capital proceeds on trust pending agreement between the prior owners regarding their distribution.

The prior owners advised you that they held the property as an investment. They advised they were not registered for GST in relation to the property, nor did searches indicate they were registered for GST.

You subsequently became aware that one of the prior owners quoted his individual ABN to the lessee. A tax invoice shows that a payment from the lessee included an amount of GST.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 254

Income Tax Assessment Act 1936 subsection 161(1)

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 110-25(2)

Income Tax Assessment Act 1997 section 110-35

A New Tax System (Goods and Services Tax)Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1)