Private ruling: Trustee and agent's retention obligations
Date of advice: 8 July 2025
Published: 15 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do the receivers have an obligation under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) to file an income tax return in respect of any capital gains arising on the sale of the property? | A1: Yes. | Q2: If the answer to question 1 is yes, do the receivers have an obligation under section 254 of the ITAA 1936 to retain money out of the proceeds of sale of the property, for the purpose of paying tax? | A2: Yes. | Q3: If the answer to question 1 is yes, and the receivers do not retain an amount for the purpose of paying tax as required by the obligations under section 254 of the ITAA 1936, are the receivers personally liable for the tax liability? | A3: Yes.

Relevant facts and circumstances: A court handed down its judgment in relation to individuals involved in an unlawful financial scheme. The court ordered that the scheme should be wound up and receivers should be appointed to assets owned by the individuals. Under the court orders, the receivers (in their capacity as receivers and managers) were provided with several powers including the power to do all things necessary in connection with the attainment of the objectives for which the receivers were appointed including the securing of all of the property for the benefit of creditors. The sale of the property is expected to generate net proceeds in an amount higher than the acquisition cost paid by the owners for the property. The net proceeds from the sale of the property will be less than the amount owing to creditors.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 254

Reasons for decision: Summary: All legislative references in the reasons for decision relate to the ITAA 1936 unless otherwise specified. Section 6 of the ITAA 1936 defines 'trustee' as in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, including: a) An executor or administrator, guardian, committee, receiver or liquidator; and b) Every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability. Section 254 imposes obligations on every trustee in respect of any income or any profits or gains of a capital nature derived by them in their representative capacity, creating a secondary tax liability for agents and trustees, ancillary to the primary tax liability. Section 254 is triggered at the time a trustee derives income, profits or gains in his or her representative capacity. In FCT v Australian Building Systems Pty Ltd (in Liq) & Ors [2015] HCA 48 (ABS), the high court described subsection 254(1) of the ITAA 1936 as both a liability-imposing provision and a collecting provision. It imposes a tax liability on the trustee, which is ancillary to the primary tax liability. It also provides a means of collecting the liability from the trustee in certain circumstances. Specifically, paragraph 254(1)(a) makes a trustee answerable as taxpayer for the doing of all such things as are required to be done by virtue of the ITAA 1936 in respect of the income, or any profits or gains of a capital nature, derived by him or her in his or her representative capacity, or derived by the principal by virtue of his or her agency, and for the payment of tax thereon. In this case, the receivers are a 'trustee' within the meaning of section 6 as they are court-appointed. This means that the receivers are not only subject to the obligations set out under section 254, but also any additional obligations set out by the court. While the court stated that the receivers had been provided with the power to do all things necessary to the attainment of the objectives for which the receivers are appointed, this is similar to subsection 254(1)(a), where every trustee shall be answerable as taxpayer for the doing of all such things as are required to be done by the ITAA 1936. Here, the court does not appear to set out any further obligations outside of section 254 aside from impartial reporting to the court periodically with reports and accounting, as is often required when appointed by the court. This is because they usually act as an officer of the court, deriving their power directly from a judge's order which gives them broader authority and legitimacy. We note that it is stated in Taxation Determination TD 2021/5 Income tax: a receiver's obligation to retain money for post-appointment tax liabilities under section 254 of the Income Tax Assessment Act 1936 (TD 2021/5) that the application of the law to court appointed receivers will depend on the actual court orders. In this case, notwithstanding the wording 'for the benefit of creditors' as stated at paragraph 9 of the court orders, our view is that there is nothing in the orders to say that the receivers are not also acting in the interests of the defendants in carrying out their duties and obligations. | Detailed Reasoning - Lodgment obligation: Section 161 mandates that every 'person' must lodge an income tax return if required by the Commissioner. The receivers, as agents or trustees, are considered 'persons' under the ITAA 1936 and are therefore subject to these requirements. The receivers are obligated to file an income tax return under paragraph 254(1)(b) in respect of any capital gains arising on the sale of the property. | Detailed Reasoning - Retention obligation: The receivers are also under an obligation to retain and pay tax on the capital gains. However, this is only enlivened upon the issuing of a 'relevant assessment'. A 'relevant assessment' means one that includes the gains derived on the sale of the property by the receivers in their representative capacity. Therefore, any tax assessed on that gain enlivens the retention obligation in paragraph 254(1)(d). If the receivers are assessed tax in respect to the capital gain, then the receivers will have an obligation to retain funds to pay the assessed tax liability out of any funds the receivers hold when the relevant assessment is made and any for any amount that comes to them in their representative capacity. As noted in TD 2021/5, the Commissioner considers that the retention obligation in section 254 does not exceed the amount that the Commissioner can legally recover. Therefore, in this case, the amount that the receivers must retain is limited to the amount of the assessed tax that the Commissioner can legally recover from the individuals. | Detailed Reasoning - Personal liability: Under section 254(1)(e) of the ITAA 1936, the receivers become personally liable for taxes payable arising from the sale of the property, where they are issued with a notice of assessment and have failed to retain sufficient funds to pay the tax outstanding. After an assessment has been issued to the receivers, any funds or assets that the receivers hold or subsequently collect will be required to pay the assessable amount. Where the receivers fail to retain sufficient funds, the receivers would then become personally liable for the amount that they should have retained, as required, under section 254(1)(d) of the ITAA 1936.