Did you know that bankruptcy trustees are now liable for capital gains tax (CGT) on the sale of real property? Section 254 of the Income Tax Assessment Act 1936 (Cth) imposes specific obligations on trustees and agents, covering income, profits, and gains of a capital nature in their representative capacity. This has recently taken on new importance for bankruptcy trustees.

What has changed?

Reform of our Australian bankruptcy landscape has been the focus of policymakers for some time. The new changes lead by the Attorney-General’s Department, will see the implementation of reforms to the Bankruptcy Act 1966 (Cth) (Bankruptcy Law Reforms) and further consultation on a Minimal Asset Procedure (as foreshadowed during our recent Personal Insolvency Forum) (Minimal Asset Procedure). A further development regarding the treatment of capital gains tax (CGT) is included in this update.

The Commissioner of Taxation (Commissioner) recently issued draft taxation determination TD 2019/D2 (TD 2019/D2) dealing with the important question of a receiver’s obligation to retain money for post-appointment tax liabilities. A link to TD2019/D2.

Introduction

By unanimous decision in Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation1, five members of the High Court have reversed a controversial decision of the Full Federal Court to confirm that the Commissioner of Taxation (Commissioner) cannot ‘leap-frog’ other creditors in a liquidation.2

The High Court has further clarified the law regarding the effect of section 260-5 notices served by the Commissioner on third parties who are required to make payments to a company in liquidation.

The effect of the decision is that the Commissioner cannot issue such a notice after a company has gone into liquidation in order to give himself a priority over other creditors for payment of a tax debt. Such a notice is void.

This is the third in a series of articles highlighting the changes to be brought in by the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (Amendment Ordinance). Since our last article, 13 February 2017 has been announced as the date when the Amendment Ordinance will come into effect. The Amendment Ordinance makes amendments to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO) and the Companies (Winding Up) Rules (CWUR).