Private ruling: CGT- duties of receivers and managers
Published: August 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: On or after 1 June 2013

Ruling: Q1: Are the "Receivers", as joint and several receivers and managers, liable for CGT on the sale of the property? | A1: Yes. | Q2: Are the remuneration, professional fees and outlays incurred by the Receivers required to be included in full as part of the cost base, being incidental costs that relate to the disposal of an asset? | A2: Yes. | Q3: Is it possible to calculate the CGT in the absence of historical information about the registered owner's taxation affairs, including prior carried forward losses, tax losses, eligibility for small business concessions, details of interest paid on borrowings in respect of the property, and details of any other deductible expenses in respect of the property? | A3: No. | Q4: Can the receivers and managers be reasonably excused from the provisions of Section 254 of the Income Tax Assessment Act 1997 (ITAA 1997) due to the lack of available records to accurately calculate whether a gain arises from the sale of the property, and whether or not there is a shortfall in respect of the amount owing to the mortgagee? | A4: No.

Relevant facts and circumstances: 1. You were appointed as joint and several receivers and managers of X (the "Property") pursuant to a Deed of Appointment of Receivers and Managers (the "Deed") dated dd/mm/yyyy. 2. The registered owner of the property, immediately prior to your appointment, was X (the "Debtor"). 3. On dd/mm/yyyy, the Debtor granted a mortgage on the property in favour of X (the "Mortgagee"). 4. The Debtor defaulted under the mortgage agreement, and the Mortgagee appointed you as the receivers and managers of the secured property. 5. The Property is a tenanted as commercial property, and was being leased on normal commercial terms. 6. You have partially calculated the cost base of the CGT asset. 7. You have attempted to obtain further information in relation to any other costs that may be included in the cost base, however, you have been unsuccessful. 8. You appointed an agent for the sale of the property, and incurred the following incidental costs that relate to the CGT asset. This has been reflected in a partial calculation of the cost base, as provided by you. 9. Your fees and outlays also include the cost of administering the receivership generally. 10. You estimate the proportion of the costs directly related to the sale of the asset to be Y%. 11. On X date the property was sold at auction, and a contract for sale was signed. 12. The sale price of the Property was $X. 13. You do not have any information regarding the Debtor's current and/or prior year capital losses. 14. You have not been able to determine certain other costs that may affect your calculations, including: · Interest and borrowed money · Rates and land tax · Costs of repairing and maintaining the CGT asset; · Trading losses of X; and · The Debtor's level of income for the relevant income tax year or their marginal tax rate for that year. 15. You provided a copy of the Deed with your private binding ruling (PBR) application. Clause 2 of the Deed states: 2.1 The Mortgagor hereby appoints the receivers and managers of the Secured Property and the Receivers by executing this document acknowledge their acceptance of the appointment. 2.2 Subject to any direction that may be given in writing by the Mortgagee to the Receivers, the Receivers are entitled to exercise all powers conferred upon a receiver and manager by the Securities and by law. 2.3 The rights, powers and authorities of the Receivers vest in them jointly and severally. 2.4 To the extent that such is permitted by the Securities, and by law, the Receivers are the agents of the Mortgagor.

Relevant legislative provisions: Section 254 of the Income Tax Assessment Act 1936 | Section 6(1) of the Income Tax Assessment Act 1936 | Division 357 of Schedule 1 to the Taxation Administration Act 1953 | Division 359 of Schedule 1 to the Taxation Administration Act 1953 | Section 110-25 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: You are liable to pay tax on income, profits or gains of a capital nature derived by you as trustee, but in a representative capacity only. | Detailed Reasoning - Detailed reasoning: The relationship between a receiver and a debtor is determined by the terms of the security documentation under which the receiver is appointed, and by the relevant State and Commonwealth legislation. The security documentation can expressly provide that the receiver is the agent of the debtor. In the present case, clause 2.4 of the Deed states that you are considered to be 'agents of the mortgagor'. Therefore, you are acting on behalf of the Debtor. Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) applies to an entity that is an agent or trustee for the purposes of the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997), and contains provisions that describe the duties and obligations of persons who act as the agents or trustees of taxpayers. Section 6(1) of the ITAA 1936 defines a 'trustee' as including 'an executor or administrator, guardian, committee, receiver, or liquidator'. Therefore, in the present case, you are considered to be trustees for the purposes of section 254 of the ITAA 1936. Paragraph 254(1)(a) of the ITAA 1936 provides that an agent or trustee is answerable as taxpayer for the payment of tax on the income, or any profits or gains of a capital nature, derived by them in their representative capacity. Paragraph 254(1)(b), provides that an agent or trustee is assessed on that income or those profits or gains, but in a representative capacity only. In Fermanis v. Cheshire Holdings Pty Ltd , 90 ATC 4201 Murray J discussed section 254 of the ITAA 1936, stating (at 4203): What is clear about that provision is that it creates of itself no tax liability, which is to be otherwise derived from the provisions of the Act, so that if a tax liability is not otherwise to be drawn from the statute, none will be created by sec 254 . . . . It is clear, I think, that the provision operates as a machinery provision to facilitate tax collection in relation to liable trust income when the liability is otherwise imposed than by sec. 254. In consideration of the above, section 254 of the ITAA 1936 does not of 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. Section 254 works in conjunction with these provisions to provide that an agent, or trustee, for a debtor is liable in relation to any such tax liability that arises in their representative capacity. Paragraph 254(1)(d) of the ITAA 1936 authorises and requires a trustee to retain out of any money that is received in their representative capacity, an amount sufficient to pay tax which is, or will become due, in respect of the income, profits or gains. The receivers are then made personally liable for the tax assessed in respect of the income, profits or gains resulting from the receivership, to the extent that money has been retained, or should have been retained under paragraph 254(1)(e) of the ITAA 1936. Accordingly, your personal liability for tax imposed by paragraph 254(1)(e) of the ITAA 1936 applies only to the extent that you have made a gain in your representative capacity as receivers for the Debtor. Therefore, you will be liable for any CGT that results from the sale of the Property, but only to the extent that you have retained a sufficient amount to cover the liability. | Detailed Reasoning - Question 3: Is the remuneration, professional fees and outlays incurred by the Receivers required to be included in full as part of the cost base, being incidental costs that relate to the disposal of an asset? | Summary: The remuneration, professional fees and outlays are considered to be 'incidental' costs incurred by you in your representative capacity as receivers. Therefore, the relevant expenses should be included in the cost base. | Detailed Reasoning - Detailed reasoning: The cost base of a CGT asset is often relevant in finding out if a capital gain has been made from a CGT event that happens in relation to an asset. Section 110-25 of the ITAA 1997 states that 'incidental costs' can be included in the cost base. Incidental costs include: · Remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser. However, remuneration for professional advice about the operation of this Act is not included unless it is provided by a recognised tax adviser. · Costs of transfer; · Stamp duty, or a similar duty; · costs of advertising or marketing to find a seller; · costs of advertising or marketing to find a buyer; · costs relating to the making of any valuation or apportionment; · search fees relating to a CGT asset; · the cost of a conveyancing kit (or a similar cost); · borrowing expenses (such as loan application fees and mortgage discharge fees). With regard to the above examples, the remuneration, professional fees and outlays incurred by you will be included in the cost base, as they are considered to be 'incidental costs' pursuant to subsection 110-35(2), providing that they relate to the purchase and sale of the property. | Detailed Reasoning - Question 4: Is it possible to calculate the CGT in the absence of historical information about the registered owner's taxation affairs, including prior carried forward losses, tax losses, eligibility for small business concessions, details of interest paid on borrowings in respect of the property, and details of any other deductible expenses in respect of the property? | Summary: It is not possible to calculate the CGT without sufficient information concerning the purchase and sale of the Property. | Detailed Reasoning - Detailed reasoning: You have informed us that you do not have sufficient information to calculate the capital gain. You will need to obtain this information from the appropriate sources | Detailed Reasoning - Question 6: Can the Receivers be reasonably excused from the provisions of Section 254 of the ITAA 1997 due to the lack of available records to accurately calculate whether a gain arises from the sale of the property, and whether or not there is a shortfall in respect of the amount owing to the mortgagee? | Summary: As Receivers, you are considered to be trustees for the debtor, and as such, you are required by paragraph 254(1)(d) of the ITAA 1936 to retain from the sale proceeds a sufficient amount of money to pay tax that is, or will become due, as a result of disposing of a CGT asset. If there is insufficient information to accurately calculate the CGT consequences of selling the property, you will need to obtain the information. It does not excuse you from your responsibilities under section 254 of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: Section 254 of the ITAA 1936 imposes a number of obligations upon agents and trustees in respect of any income, profits or gains derived by the agent or trustee in their representative capacity. Draft Taxation Ruling TD 2012/D7 Income tax: does a receiver who disposes of a CGT asset as the agent for the debtor have an obligation under section 254 of the Income Tax Assessment Act 1936 to retain from sale proceeds sufficient money to pay tax which is or will become due as a result of disposing of that asset? (TD 2012/D7) explains the obligations imposed on a receiver with respect to a capital gain. In compliance with paragraph 254(1)(d) of the ITAA 1936, a receiver has an obligation to retain sufficient money to pay tax that is, or will, become due. As discussed at paragraphs 5 and 6 of TD 2012/D7, the following example applies: Andrew is appointed to act as a receiver for Carl's Cars Pty Ltd (the debtor) by Big Bank Co (a secured creditor of the debtor) pursuant to a deed of appointment. The deed of appointment specifies that Andrew is an agent for the debtor. Andrew makes a gain of a capital nature through the sale of one of the debtor's assets. Andrew makes the gain in his representative capacity as receiver for the debtor. Paragraph 254(1)(d) of the ITAA 1936 authorises and requires Andrew to retain from the proceeds so much as is sufficient to pay the tax which is or will become due in respect of the gain. The above example is similar to your own circumstances. Therefore, in accordance with paragraph 254(1)(d) of the ITAA 1936, you are required to retain from the proceeds of the property sale a sufficient amount to pay the tax that is, or will be come due, in respect of the gain. A lack of available records does not excuse you from your obligations under 254(1)(d) of the ITAA 1936.