Edited version of private advice

Authorisation Number: 1052200343686

Date of advice: 7 December 2023

Ruling

Subject: CGT - withholding obligations

Question 1

Does the Trustee have a liability to tax under sections 98, 99 or 99A of the Income Tax Assessment Act 1936 (ITAA 1936), or any other provision of the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997), on the capital gain from the sale of the Property?

Answer

No. As the unitholders of the Trust are either presently entitled or specifically entitled to the net income of the Trust and both were always residents of Australia, the Trustee will not be assessed or pay tax on the capital gain.

Question 2

Do the Receivers or Liquidators have an obligation under section 254 of the ITAA 1936 to retain money out of the proceeds of the sale of the Property?

Answer

No. As explained under Question 1, the Trustee will not be assessed on the capital gain. For the purposes of the retention obligation in paragraph 254(1)(d) of the ITAA 1936, until a relevant assessment has been made, you are not obliged to withhold an amount.

While you do not have a specific obligation to retain funds upon the mere happening of a CGT event (the sale of a property), a prudent trustee would be entitled to retain an amount until the income tax position had become certain by way of an assessment being made (Logan J at [31] 2014 ATC 20-444).

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

X November 20XX

Relevant facts and circumstances

The Company was the trustee of the Unit Trust (the Trust).

The Trust is a unit trust with two unitholders each with 50 units.

On X November 20XX, the State Supreme Court ordered that the Company be wound up, that the Trust be wound up and that liquidators of the Company and receivers of all property of the Trust be appointed to enable them to wind up both the Company and the Trust.

The main asset of the Trust was a commercial property.

Sale of the Property

The Property was sold by the Receivers under a contract of sale dated X March 20XX. Settlement occurred X April 20XX.

The disposal of the Property by the Receivers triggered a capital gain in the Trust for the income year ended 30 June 20XX.

The Company automatically ceased to be the trustee of the Trust when the Liquidators were appointed to the Company, and the Receivers were not appointed as the trustee of the Trust.

One of the two unitholders applied to the State Supreme Court for the appointment of a trustee to the Trust. It did so solely for the purpose of allowing a new trustee to make a resolution under the Trust Deed that each of the two unitholders be presently entitled to their respective shares of the income of the Trust (including the capital gain derived on sale of the Property).

Pursuant to Orders the Trustee was appointed as trustee of the Trust. Upon their appointment, was required to pass a resolution by 30 June 20XX and was thereafter, by force of the said Order, removed as trustee of the Trust.

Trustee resolution

On 29 June 20XX, the Trustee passed the resolution required by the Orders. In the Resolution, the Trustee resolved that, subject to the Orders and under the Trust Deed, all the net income of the Trust for the income year ended 30 June 20XX be distributed to the unitholders (as to 50% each) in accordance with the Trust Deed.

The unitholders are residents for Australian Income Tax purposes and not under a legal disability.

No cash distribution of the proceeds from the sale of the Property has yet been made to the unitholders.

Neither the Company, the Trustee, the Receivers or the Liquidators have lodged an income tax return for the Trust for the income year ended 30 June 20XX, so have not been issued with an assessment.

Neither the Company, the Trustee, the Receivers or the Liquidators have made an election for the purposes of subsection 115-230(1) of the ITAA 1997 to be assessed on the capital gain in relation to the sale of the Property.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 section 98

Income Tax Assessment Act 1936 section 99

Income Tax Assessment Act 1936 section 99A

Income Tax Assessment Act 1936 section 254

Income Tax Assessment Act 1997 subdivision 115-C