Capital Gains Tax and Bankruptcy: A Minefield for Trustees in Bankruptcy

Abstract

The imposition of capital gains tax on trustees in bankruptcy has become a contentious issue following the Federal Court’s decision in Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720. Historically, trustees in bankruptcy were not held liable for capital gains tax on asset disposals during bankruptcy; rather, the liability was attributed to the bankrupt individual. However, the court’s interpretation of s 254 of the Income Tax Assessment Act 1936 (Cth) has altered the established position, making trustees in bankruptcy personally liable for CGT arising from post-appointment disposals. This article examines the shift in legal interpretation by analysing the rationale in Robson and its departure from established practice. It further discusses the practical challenges and commercial implications of the decision, and identifies strategies adopted by trustees to mitigate personal liability, including reliance on pre-appointment disposals. Ultimately, this article concludes that reform is required to address the inequities and inefficiencies arising from the Robson decision, in order to ensure the fair and efficient administration of bankrupt estates.