In a decision handed down on Wed 8.10.2014, the Full Federal Court has unanimously dismissed the Commissioner’s appeal from the decision in Australian Building Systems Pty Ltd v FCT [2014] FCA 116. In that case it was held that where an assessment has not been issued to the taxpayer in respect of a capital gain made on the disposal of property, in circumstances where the sale was effected by liquidators appointed to the taxpayer, then s 254(1)(d) of the ITAA 1936 does not require the liquidators to retain monies from the sale to pay the accompanying liability to the Tax Office. The Commissioner argued that such an obligation did exist in the circumstances.
The liquidators appointed to the taxpayer sold a property originally owned by the taxpayer for a capital gain of some id=”mce_marker”.12m. An assessment of tax had not been issued in respect of the gain but was expected to be issued to the taxpayer. The issue before the court was whether s 254(1)(d) obliged the liquidators (as trustees in terms of the definition of “trustee” in s 6(1) of the ITAA 1936) to retain amounts from the proceeds of sale to pay the tax to be assessed in respect of the sale as the Commissioner contended.
However, the Full Federal Court unanimously held that that s 254(1)(d) only imposes an obligation of retention once a relevant assessment has issued. It did so for reasons different than those found at first instance. They were essentially that s 254 is a “collecting section” and, as a result, has no operation to render a trustee liable to be assessed to tax if the trustee is not otherwise liable to be assessed (by assessment) under the provisions of Div 6 of Pt III of the ITAA 1936.
(FCT v Australian Building Systems Pty Ltd (in liq) [2014] FCAFC 133, Full Federal Court, Edmonds, Collier and Davies JJ, 8 October 2014.)
[LTN 194, 8/10/14]
Section 254 of the ITAA36
SECT 254 -Agents and trustees
(1) With respect to every agent and with respect also to every trustee, the following provisions shall apply:
(a) He or she shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature, derived by him or her in his or her representative capacity, or derived by the principal by virtue of his or her agency, and for the payment of tax thereon.
(b) He or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his or her representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other.
(c) If he or she is a trustee of the estate of a deceased person, the returns shall be the same as far as practicable as the deceased person, if living, would have been liable to make.
(d) He or she is hereby authorized and required to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains.
(e) He or she is hereby made personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount that he or she has retained, or should have retained, under paragraph (d); but he or she shall not be otherwise personally liable for the tax.
(f) He or she is hereby indemnified for all payments which he or she makes in pursuance of this Act or of any requirement of the Commissioner.
(g) Where as one of 2 or more joint agents or trustees he or she pays any amount for which they are jointly liable, each other one is liable to pay him or her an equal share of the amount so paid.
(h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as the Commissioner would have against the property of any other taxpayer in respect of tax.
(2) Subsection (1) applies to the following in the same way as it applies to tax:
(a) the general interest charge under:
(i) section 163AA, former section 170AA, former subsection 204(3), former subsection 221AZMAA(1), former subsection 221AZP(1), former subsection 221YD(3) or former section 221YDB of this Act;
(ii) section 5-15 of the Income Tax Assessment Act 1997 ;
(b) additional tax under former Part VII of this Act;
(c) shortfall interest charge.
Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953 and shortfallinterest charge is worked out under Division 280 in Schedule 1 to that Act.
Note 2: Subsection 8AAB(4) of that Act lists the provisions that apply the general interest charge.
(3) In paragraphs (1)(d) and (e), and in its first occurrence in paragraph (1)(h), tax includes, in addition to the things mentioned in subsection (2):
(a) trustee beneficiary non-disclosure tax within the meaning of Division 6D of Part III; and
(b) general interest charge payable under section 102UP in respect of such tax.