ATO and Tax Practitioners Board update

ATO online services - new topic selections added

The ATO continue to improve services provided to insolvency practitioners. The following new topics have recently been added to the website:

  • New insolvency advice - all appointments
  • SB restructuring
  • Simplified liquidation

To find out more visit ato.gov.au/OSB.

Tax treatment of net capital gain on disposal of CGT asset by trustee in bankruptcy

Where a trustee in bankruptcy has disposed of a capital gains tax (CGT) asset and has derived a net capital gain, section 254 of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the trustee in bankruptcy is responsible for the payment of the tax. 

Section 254 of the ITAA 1936 is to be read in conjunction with section 106-30 of the Income Tax Assessment Act 1997 (ITAA 1997).  While section 106-30 of the ITAA 1997 makes a capital gain or loss that has been derived by a trustee in bankruptcy attributable to the bankrupt individual instead of the trustee for CGT purposes, section 254 of the ITAA 1936 makes a trustee answerable as the individual taxpayer.

This means that the trustee in bankruptcy will need to:

  • report the net capital gain by lodging a return in their representative capacity and be assessed thereon;
  • retain the requisite amount of CGT upon being issued a notice of assessment; and
  • pay tax on the relevant capital gains.

The ATO has published guidance material to support insolvency trustees in understanding their obligations under section 254 of the ITAA 1936.  In particular, Practice Statement Law Administration - Insolvency - collection, recovery and enforcement issues for entities under external administration (PS LA 2011/16) provides that:

  • The trustee will be required to apply for a separate tax file number (TFN) and to lodge separate trust income tax returns to account for any income, profits or gains derived by the insolvent estate.
  • A trustee is required to retain amounts sufficient to pay tax which is or will become due in respect of the income, profits or gains. He or she is required to make the returns and shall be assessed in respect of that income, or those profits or gains, in his or her representative capacity.

Additionally, the ATO publishes an annual legislative instrument titled the “Lodgment of income tax returns for the year of income” (2017 and prior years) or “Notice of Requirement to Lodge a Return for the Income Year” (from 2018 onwards), which is registered in the Federal Register of Legislative Instruments.  These legislative instruments set out the lodgment obligations of taxpayers.  Particularly relevant for trustees, the legislative instruments require a trustee to lodge a trust return where he or she has derived income (including capital gains).

Insolvency practitioners: Do you need to register as a tax or BAS agent?

Insolvency professionals that provide designated tax agent services may need to register as a tax agent with the Tax Practitioners Board, even if the tax services are offered as part of a broader insolvency matter.

For more information visit tpb.gov.au.