Private ruling: Payment of PAYG tax withheld
Published: January 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: During 2011

Ruling: Q1: Is the trustee (the Trustee) of a family trust (the Trust) required to pay to the Commissioner the tax that was withheld by a Company from the payments that were made by the Company to the employees of the Trust during the period from 3 to 24 March 2011? | A1: No.

Relevant facts and circumstances: The Trustee operated a business as a franchise. In March 2011 the Trustee sold the business back to the Company. The settlement of the sale of the business took place during March 2011. During the period from 3 to 24 March 2011 the Company made payments to the employees of the Trust and withheld tax from the payments. A dispute has arisen between the Trustee and the Company in relation to which entity is required to pay to the Commissioner the tax withheld from the payments.

Relevant legislative provisions: Taxation Administration Act 1953 Schedule 1 Division 12 | Taxation Administration Act 1953 Schedule 1 Section 12-35 | Taxation Administration Act 1953 Schedule 1 Section 16-70

Reasons for decision: Summary: The Trustee is not required to pay to the Commissioner the tax that was withheld by the Company from the payments that were made by the Company to the employees of the Trust during the period from 3 to 24 March 2011. | Detailed Reasoning - Pay As You Go (PAYG) withholding system: Part 2-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) relates to the PAYG withholding system. Division 12 of Schedule 1 to the TAA relates to payments from which amounts must be withheld. Section 12-35 of Schedule 1 to the TAA provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). Section 16-70 of Schedule 1 to the TAA provides that an entity that withholds an amount under Division 12 must pay the amount to the Commissioner. | Detailed Reasoning - Application to your circumstances: During the period from 3 to 24 March 2011 the Company made payments to the employees of the Trust and withheld tax from the payments under section 12-35 of Schedule 1 to the TAA. The Company withheld the tax from the payments under Division 12 of Schedule 1 to the TAA. Therefore, the Company rather than the Trustee is required to pay the tax to the Commissioner under section 16-70 of Schedule 1 to the TAA. The tax withheld by the Company represents tax paid by the employees. It belongs to the Commissioner not the Company. Hence, the Company is required to pay the tax to the Commissioner. The fact that the Company may not have been under a legal obligation to pay the employees of the Trust does not alter this conclusion.

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