Today the Commissioner issued PSLA 2012/2 ‘Change of Trustee’ outlining the approach to be taken by the Commissioner in recovering income tax and GST liabilities of a trust where there is a change of trustee following a income tax year or a tax period. This Practice Statement has important ramifications for any trustee that ceases that role given that the Commissioner takes the view that any liability to income tax and GST remains a personal liability of the retiring trustee (although the retiring trustee may have rights to seek indemnity from the assets of the trust – to the extent that there are such assets).
In the context of GST, the Practice Statement takes the following view:
- the trustee of a trust is taken to be an entity consisting of the person or persons who are the trustees at any given time
- although GST is payable on taxable supplies, a discrete liability is not fixed each time a taxable supply is made. Rather, the sum of the GST payable on all taxable supplies for a tax period is a component of the formula for working out the ‘net amount’ under s 17-5 of the GST Act – this net amount will be either a liability or an entitlement to a refund
- it is only at the close of the tax period that amounts of GST on taxable supplies and input tax credits can be netted off so as to determine what the net amount for that period is – a liability for the net amount thereby arises at the end of the tax period and liability attaches to a trustee at that time
- there is no basis to impose liability for GST on a trustee at a later time, e.g. at the time of assessment – the Commissioner has no rights to impose liability on the new trustee directly
- while the matter is not free from doubt, the trust entity provisions in s 184 of the GST Act do not confer rights against a new trustee who has replaced a liable trustee
The Practice Statement refers to the following example in a GST context:
The Arnold Family Trust accounts for GST on a quarterly basis. For the tax period ended 30 June 2011 it has a net amount payable and accordingly a tax-related liability arises at that time. Ants Pty Ltd is the trustee of the trust at the end of the tax period, but retires on 1 July 2011, and is replaced by Aardvark Pty Ltd. Ants Pty Ltd is the trustee liable for the net amount for the tax period ending 30 June 2011, even though the net amount is not due and payable until 28 July 2011.
The above example shows that the Commissioner considers that the liability to pay a net amount arises at the end of the tax period (presumably midnight on the night of the last day), notwithstanding that the quantum of that net amount is not determined until an activity statement is filed in the following month (s 17-5) and the net amount does not become payable until that later time (s 33-5).
This is bound to be a controversial area which will likely give rise to disputes, both between the Commissioner and trustees and also between trustees.
Some of the areas of difficulties may include the following:
- Using the Commissioner’s example, the trustee retires on 30 June 2011 rather than 1 July 2011. The outgoing trustee would not be liable for the net amount during that tax period notwithstanding that it was the trustee for all of those transactions – similarly, the incoming trustee would be liable for all those transactions. Arguably a harsh result.
- Incoming trustees would not appear to not have rights to object to assessments issued to the trust for previous tax periods, notwithstanding that the Commissioner will be seeking to effectively recover the unpaid GST from the assets of the trust (through the previous trustee’s rights of subrogation)
- In many cases the outgoing trustee will have no assets