The Australian Taxation Office (ATO) has recently released two
Draft Taxation Determinations (TDs), TD 2012/D6 and TD 2012/D7 to
resolve the uncertainty surrounding the obligation of receivers
when Capital Gains Tax (CGT) assets are sold in the course of
receivership. The TDs discuss the ATO's interpretation on how
section 254 of the Income Tax Assessment Act 1936
In essence, the TDs stipulate that receivers are obliged to
retain from the sale proceeds that come to them in the capacity of
receiver, sufficient funds to pay tax which is or will become due
as a result of disposing of a CGT asset. This applies even if no
formal tax assessment has been made by the Commissioner.
Importantly, the ATO deems the retention of funds required by
the Section as a statutory requirement that takes precedence over
other contractual rights including the contractual rights of
The Section provides that agents and trustees which
include administrators, receivers and liquidators are required to
retain funds to pay tax 'which is or will become due' in
respect of the income, profits or gains realised by the principal
(ie debtor). The Section also makes agents personally liable for
the tax payable in relation to the amounts required to be
This draft determination qualifies the current position that
agents or trustees in their representative capacity have
obligations under the Section and that the Section does not itself
create a liability for tax. It is meant to work in conjunction with
the other relevant substantive liability provisions (including the
CGT regime) to allow for the agents to be liable for any tax
liabilities that arise in the course of their agency.
The TD specifically rules that obligations under the Section
extend to the total capital gain arising from the CGT asset and not
just any capital gains accruing from the time the receiver is
appointed. The TD provides the following example:
"If an asset was purchased ten years earlier for A$100,000,
and it was worth A$200,000 when the receiver was appointed as agent
for the debtor, and subsequently it was disposed of for A$210,000
during the period in which the receiver was the agent of the
debtor, then the debtor's tax liability (if any) will relate to
the whole of the A$110,000 capital gain."
The Section then applies to the capital gain and the receiver
will be required to retain an amount sufficient to pay the tax
liability regardless of whether the money was used to meet secured
debts. The TD further stipulates that this "obligation
subsists despite other existing or potential claims over the
The obligation to withhold and remit tax will not apply to a
mortgagee in possession as a mortgagee in possession is not an
agent or trustee of the debtor for the purposes of the Section.
This draft determination examines whether an assessment is
required to be made before the obligation to retain funds arises.
The ATO takes the view that an assessment is not required before
the obligation to retain sufficient funds to pay the tax which
This is contrary to a High Court case decided in 2007 which
considered the phrase in the context of another provision that
imposes an obligation to retain funds (section 255). The ATO relied
on the differences in the legislative history and policy arguments
in relation to the two sections in forming its view. In addition,
the ATO considers that an agent or trustee will ordinarily have the
ability to accurately calculate any tax liabilities on disposal as
they are generally in possession of relevant information.
It is essential for receivers to understand these rules and
ensure that they take appropriate steps to retain sufficient tax as
they can be held personally liable for any shortfall, ie in
situations where the proceeds from sale are insufficient to meet
both the secured debt and the tax amount.
As the Section (and the draft determinations) implicitly
recognises that receivers will ordinarily have the ability to
calculate any tax due, they will have to ensure that all
information necessary to calculate the tax liability is obtained
and retained. Where this proves to be practically difficult,
receivers will need to obtain specialist tax advice or approach the
ATO to obtain a ruling as to the appropriate amount to
The ATO has indicated that it will only apply TD 2012/D7
prospectively from the time that the final determination is
TD 2012/D6 will be applied both prospectively and
The deadline for submissions on these draft determinations is 19
October 2012. Middletons would be happy to assist you if you would
like to lodge a submission.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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