Private ruling: Tax withholding obligations
Published: February 2014
Ruling period: 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: If the trust is in a net loss position after taking into account the profits and gains from the disposal of its assets, do you have a tax liability under paragraph 254(1)(d) of the Income Tax Assessment Act 1936 (ITAA 1936)? Answer No.

Relevant facts and circumstances: Company A is trustee for the Trust. The Trust entered into a residential unit development. Some units were sold prior to the relevant financial year. In the relevant financial year, receivers and managers were appointed over the remaining units. During the receivership period, the remaining units were sold. The Trust had lodged previous tax returns showing carry forward losses. The directors of the trustee company have not provided any additional information to enable the receivers to accurately determine the value of trading stock/capitalised development expenditure. The receivers have: · made numerous telephone calls and sent e-mails to the directors · instructed solicitors to formally request the information from the directors · reported the directors to the Australian Securities and Investment Commission (ASIC) for a breach of their obligations under section 422 of the Corporations Act. Based on the information available to the receivers, they have assessed the Trust's tax position as an overall loss.

Relevant legislative provisions: Income Tax Assessment Act 1936 - subsection 6(1) | Income Tax Assessment Act 1936 - subsection 254(1)

Reasons for decision: Summary: You were appointed as receiver/manager of the trustee company in the relevant financial year. Under paragraph 254(1)(a) of the ITAA 1936, an agent or trustee is answerable as taxpayer for all things required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature that are derived by the principal by virtue of his or her agency. In addition, paragraph 254(1)(d) of the ITAA 1936 requires an agent or trustee to retain sufficient funds to pay the tax that is or will become due in respect of that income, profits or gains. Specifically, this paragraph states the following: 'he is hereby authorised and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.' In so far as the amounts received by you are derived by the company by virtue of your appointment, they are amounts to which paragraph 254(1)(d) may apply. However, the amounts received are less than the overall costs, such that tax is not, and will not become, payable in respect of the income, profits or gains derived by the company by virtue of your appointment. As such, no obligation to retain an amount will arise under paragraph 254(1)(d) of the ITAA.