ATO Interpretative Decision
ATO ID 2002/894
Income Tax
Capital gains tax - capital loss - beneficiary wanting to claim loss made by discretionary trustFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can a beneficiary of a discretionary trust apply a capital loss, made by the trust in an earlier year, to reduce a capital gain made by the beneficiary in the current year under the method statement in subsection 102-5(1) of the Income Tax Assessment Act 1997 ('ITAA 1997')?
Decision
No. The method statement in subsection 102-5(1) of the ITAA 1997 does not allow a beneficiary to apply a capital loss made by the trust to reduce a capital gain made by the beneficiary.
Facts
The taxpayer was a beneficiary of a discretionary trust that conducted a business.
The trust made a capital loss some years ago when it ceased to operate the business.
The taxpayer wants to apply the loss made by the trust to reduce a capital gain made by the taxpayer on the disposal of property owned by the taxpayer in the current year of tax.
Reasons for Decision
Subsection 102-5(1) of the ITAA 1997 provides the method to be used for working out the net capital gain (if any) which is to be included in your assessable income for the income year.
Under subsection 102-5(1) of the ITAA 1997 the net capital gain is worked out by reducing the capital gains made during the income year by the capital losses (if any) made during the income year. The capital gain is reduced by applying any unapplied net capital losses made in previous years.
Section 102-20 of the ITAA 1997 provides that a capital gain or a capital loss is made if, and only if, a CGT event happens. The gain or loss is made at the time of the event.
A full list of CGT events is in section 104-5 of the ITAA 1997. There is no CGT event which is applicable to allow the transfer of a capital loss made by a trust to a beneficiary of the trust.
Under subsection 102-5(1) of the ITAA 1997, the beneficiary can only reduce a capital gain by a capital loss the beneficiary has personally made as the result of a CGT event happening in accordance with section 102-20 of the ITAA 1997.
Date of decision: 17 July 2002Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
subsection 102-5(1)
section 102-20
section 104-5
Keywords
Capital gains tax
Capital losses
Method statement
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 17 July 2002 | Original statement |
| 12 March 2010 | Archived |