Private ruling: CGT - receiver obligations
Published: September 2014
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 20XX

Ruling: Q1: Were the Receivers an 'agent' or 'trustee' of X in any relevant income year? | A1: Yes | Q2: Do the Receivers have any liability for any tax payable in respect of the vesting of the Properties in the Statutory Trustee? | A2: No | Q3: Will the disposal of the Properties in the relevant financial year result in a capital gain? | A3: No | Q4: Do the Receivers have any liability for any tax payable in respect of the disposal of the Properties in the relevant financial? | A4: No | Q5: Are the Receivers required to lodge any tax return in relation to any income, profits or gains derived in respect of the vesting or disposal of the Properties? | A5: No

Relevant facts and circumstances: The Properties were previously owned by X. Pursuant to a court order, the Properties vested in the Statutory Trustees. The vesting occurred pursuant to section 38 of the Property Law Act 1974 (Qld) . Prior to the sale of the Properties, the Receivers were appointed jointly and severally as receivers and managers of the Properties. The Deed of Appointment of Receivers (the Deed) states that the Receivers shall be agents of the Mortgagor (X). The Properties were ultimately sold during the relevant financial year following the appointment of the Receivers. The Receivers do not have control of the financial records of either X or the Statutory Trustees.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1936 Section 254 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 110-25(2) | Property Law Act 1974 (Qld) Section 38

Reasons for decision: Detailed Reasoning - Agents: The nature of the relationship between a receiver and a debtor is governed by the terms of the deed under which the receiver is appointed, and by relevant State and Commonwealth legislation. The instrument under which the receiver is appointed will usually expressly provide that the receiver is the agent of the debtor, and even if it does not, it can usually be inferred from construction of the instrument (Dal Pont, G E, Law of Agency , 2001, Butterworths, Australia at 36; Gosling v Gaskell [1897] AC 575 at 595 per Lord Davey and Taxation Determination TD 2012/D7, footnote 1). In this case, the instruments under which the Receivers were appointed are the Deed and the mortgages. The Deed specifically states that the Receivers will act as agent for the mortgagor, being X. Accordingly, pursuant to the Deed, the Receivers are agents of X. | Detailed Reasoning - Section 254: Subsection 254(1) of the Income Tax Assessment Act 1936 (ITAA 1936) sets out the taxation obligations, responsibilities and rights of persons who act as agents and trustees of taxpayers. The relevant paragraphs relating to the obligations of trustees and agents state that: (a) He or she shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act 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 agency, and for the payment of tax thereon. (b) He or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his or her representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other. ….. (d) He or she is hereby authorized and required to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. A receiver satisfies the definition of 'trustee' in subsection 6(1) of the ITAA 1936. Accordingly, a receiver may have obligations under section 254 of the ITAA 1936. | Detailed Reasoning - Vesting of Properties: ATO Interpretive Decision ATO ID 2009/129 provides that capital gains tax (CGT) event A1 occurs when property vests in a statutory trustee pursuant to section 38 of the Property Law Act 1974 (Qld) . For the purposes of section 254 of the ITAA 1936, 'derived' has to have a meaning that is consistent with the ordinary operation of the legislation in relation to income, profits and gains of a capital nature. When considering the sale of a CGT asset, the timing rules contained in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) must apply to determine when such amounts are included in assessable income. In this case, the vesting of the Properties in the Statutory Trustees occurred prior to the appointment of the Receivers. Regardless of when X received any capital proceeds from the CGT event, the timing rule in subsection 104-10(3) of the ITAA 1997 provides that CGT event A1 occurred on the making of the court order (ATO ID 2009/129). That is when the capital gain was derived for the purposes of section 254 of the ITAA 1936. Accordingly, the Receivers have not derived a capital gain from the vesting of the Properties in the Statutory Trustees for the purposes of section 254 of the ITAA 1936 as the CGT event occurred, and any resulting capital gain was derived, prior to their appointment. Therefore the Receivers will not have any liability for any tax payable in respect of the vesting of the Properties in the Statutory Trustees. | Detailed Reasoning - Disposal of Properties: When the Properties were disposed of during the relevant financial year, CGT event A1 occurred on the date of the contract. The CGT event will result in a capital gain if the capital proceeds from the disposal are more than the cost base of the asset. As a result of the court order, the Statutory Trustees acquired the Properties. The first element of the cost base of the Properties for the Statutory Trustees will be equal to the amount the paid, or required to be paid, in respect of acquiring them (subsection 110-25(2) of the ITAA 1997). At the time of the court order, the Statutory Trustees did not pay anything to acquire the Properties. However, the Statutory Trustees were required to pay the net proceeds from the sale of the Properties to X, including by way of discharging the relevant mortgages. Other costs incurred in relation to the sale of the Properties may form part of the cost base. Accordingly, the cost base of the Properties will equal the capital proceeds from their disposal. Therefore, the disposal of the Properties will not result in a capital gain. Section 254 of the ITAA 1936 does not itself create a liability for tax. Rather, any liability to pay tax is created under the relevant substantive liability provisions of the income tax legislation. The effect of the section subjects the agent or trustee to certain obligations which have the effect of protecting the Commissioner's right to collect certain tax liabilities. As the disposal of the Properties during the relevant financial year will not result in any capital gain it follows that there will be no liability for any tax payable in respect of the disposal of the Properties for the Receivers. | Detailed Reasoning - Lodgment of returns: Taxation Determination TD 94/68 provides guidance in the situation where conflicting duties to lodge a return arise, as may occur when a liquidator and a receiver/manager are appointed to a company. It states; 1. A receiver/manager and a liquidator each satisfies the definition of 'trustee' in subsection 6(1) of the Income Tax Assessment Act 1936. Therefore, each is legally responsible for lodging the return under the provisions of paragraphs 254(1)(a) and (b). 2. However, the Commissioner acknowledges that under certain appointments, the receiver/manager does not have control of the financial records. In these cases, the Commissioner would look to the liquidator for lodgment. 3. In other cases, the receiver/manager and the liquidator have equal control of the financial records. In these cases, the Commissioner accepts the usual commercial practice that the liquidator lodges the return. Accordingly, where there are multiple entities with obligations to lodge a taxpayer's return, the Commissioner will look to the person or persons who have control of the financial records to lodge that taxpayer's return for the whole of the income year. In this case, the Receivers do not control of the financial records of either X or the Statutory Trustees. Additionally, they did not derive any capital gains in their representative capacity in respect of either the vesting or the disposal of the Properties. Accordingly, the Receivers are not required to lodge any tax return in relation to any income, profits or gains derived in respect of the vesting or disposal of the Properties.