Sladen Snippet – Liability of the trustee for a bankrupt estate to pay capital gains tax; Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720

The recent Federal Court of Australia ruling in Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720 dismissed an appeal from a bankrupt’s trustee objecting to a ruling from the Commissioner of Taxation (Commissioner) regarding the liability of the trustee for the payment of capital gains tax.

It was determined that a trustee in bankruptcy has an ancillary tax liability involving the payment of capital gains tax derived from sales of the bankrupt’s real property.

1.Background Facts

Following his appointment as trustee for the bankrupt estate of Mr Lanning, Mr Robson executed the sale of two properties owned by Mr Lanning. Mr Robson then lodged an application to the Commissioner regarding his liability for the payment of capital gains tax in relation to the sales.

The Commissioner ruled that Mr Robson is liable for the payment of the capital gains tax and is answerable by operation of section 254 Income Tax Assessment Act 1997 (Cth) (ITAA). Mr Robson’s objection to this ruling was disallowed and he lodged an appeal of the objection decision on the basis it was made incorrectly.

2.Courts finding and reasoning

The issue put before Justice Downes is whether the amounts were not gains of a capital nature derived in Mr Robson’s representative capacity for the bankrupt in accordance with section 254 ITAA as they instead constituted money received by Mr Robson in his representative capacity as trustee for the bankrupt’s creditors.

Justice Downes examined the wording and operative part of section 254 ITAA and determined that the section is applicable to ‘every trustee.’ The receipt of a gain in a representative capacity is broad enough to also capture a trustee in bankruptcy which derives such a gain in that capacity. The applicant’s assumption that there can only be one party liable for paying the tax assessed upon the gain of a capital nature based on a reading of the entirety of the ITAA was also rejected by the Court.  

The Court ruled that the liability of a trustee under section 254(1) ITAA is a personal liability that arises in the course of disposing of an asset and its application extends to the conduct of a trustee of a bankrupt estate.

Please contact the writer on the following contact details if you would like more information or would like to discuss any of the above:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Brigitte Fraser
Law Clerk
E: bfraser@sladen.com.au