Private ruling: Withholding obligations
Published: August 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will you satisfy your obligations under section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) by withholding $X from the proceeds of the sale of the property? | A1: Yes.

Relevant facts and circumstances: You were appointed receivers over a property, held by company A, by a secured creditor. You entered into a contact to sell property in the relevant financial year. The property settled for $X, with the net proceeds, after settlement costs, being approximately $X. Since disposing of the property, you have attempted to obtain accounting and taxation documents from company's directors and/or the company's accountant to enable you to assess any income tax liability for the period of your appointment. You then received a garnishee notice from the ATO directing you to pay the ATO any amounts held on behalf of the company. You obtained legal advice on the garnishee notice and you obligations under section 254 of the ITAA 1936 in respect of the disposal of the property. You have on several occasions requested accounting and financial information from the directors of the company in order to determine if any gain was derived on the sale of the property and, if so, the amount of the gain. The company director initially advised you verbally that no tax was payable if a gain was made as the company had sufficient carry forward losses to offset the gain. The director also advised that any gain on the disposal of the property would be on revenue account rather than capital in nature as the company was in the business of property development. The director asserted that: - The cost base of the entire development was approximately $X, $X to acquire the land and $X for the development, and - the cost base attributable to the property, based on total area, was approximately $X. Despite these assertions, the director failed to provide any documents, financial information or accounts to support the statements. You then instructed your lawyers to make a formal demand for the information, after which a report was lodged with the regulatory body in relation to possible misconduct by the directors. To date, none of the necessary information has been received. Based on the verbal information provided by the company director, you have calculated the capital gain as $X.

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

Reasons for decision: Summary: Under paragraph 254(1)(a) of the ITAA 1936, an agent or trustee is answerable as the taxpayer for the tax payable on any income, profits or gains derived by him or her in his or her representative capacity. 'Trustee' is defined in subsection 6(1) of the ITAA 1936 to include an executor or administrator, guardian, committee, receiver, or liquidator. As receiver in relation to the company's property, you are answerable as the company for tax payable on any gain derived from the sale of the property under paragraph 254(1)(a) of the ITAA 1936. You have on several occasions requested accounting and financial information from the directors of the company in order to determine if any gain was derived on the sale of the property and, if so, the amount of the gain. To date, none of the necessary information has been received. Based on the verbal information provided by the company director, you have calculated the capital gain as $X. Based on the information provided, the Commissioner is satisfied that your calculation of the capital gain resulting from the sale of the property is reasonable.