Private ruling: Section 254 of the ITAA 1936 and the income tax liability of Receivers & Managers
Date of advice: 23 June 2016
Published: August 2016
Ruling period: 1 July 20xx to 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Does the Receiver, in their representative capacity as one of the joint and several receivers, managers and agents of the Company (Receivers and Managers Appointed) (in liquidation) have an obligation to retain any amount under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No

Relevant facts and circumstances: The Company is an Australian resident company for tax purposes. The Company granted a registered fixed and floating charge (Charge) to the Charge Holder over all of the Company's present and future assets to secure moneys owing by the Company from time to time. The Security Trustee was appointed as Security Trustee pursuant to the Security Trust Deed. Financial accommodation was made available to the Company by Participants (lenders) under a Credit Facility Agreement (as amended from time to time) and secured by the Charge. The Charge was assigned to the current Security Trustee to hold for the benefit of the Participants. An Event of Default occurred under the Credit Facility Agreement due to the Company's failure to pay principal then due and payable to the Participants. The Security Trustee appointed the Receivers to act as the Receivers of the Company, to the extent necessary to realise the remaining assets of the Company for the purpose of satisfying the Company's indebtedness to the Participants under the Credit Facility Agreement. The Company owed the Participants an amount under the Credit Facility Agreement. From the Post-Appointment Period, the Company derived trading profits which resulted in taxable income. The receivers lodged the tax return for the Post-Appointment Period and an assessment was made by the Commissioner. The Receivers realised the physical assets of the Company (at a net loss). The Court ordered the Company to be wound up and appointed liquidators.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 254

Reasons for decision: Summary: All references refer to the Income Tax Assessment Act 1936 unless otherwise stated. | Summary: The better view of the law is that section 254 does not require these receivers to retain any amount held under the arrangement. | Detailed Reasoning - Detailed reasoning: All references refer to the Income Tax Assessment Act 1936 unless otherwise stated. The intersection, and interactions, of the Corporations Act, the law of receiverships and section 254 of the Income Tax Assessment Act 1936 are both complex and largely unexamined either by the Courts or academics. While by no means free from doubt, the Commissioner considers, having regard to the precise information, analysis and assurances contained in the various documents referred to above in the relevant facts and circumstances that the better view of the law is that section 254 does not require these receivers to retain any amount held under the arrangement.