ATO Interpretative Decision
ATO ID 2005/177
Income tax
Capital gains tax and foreign residents - meaning of 'happening to' an asset in Subdivision 768-HFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is CGT event I2 in section 104-170 of Income Tax Assessment Act 1997 (ITAA 1997) 'a CGT event happening to a CGT asset' for the purposes of paragraph 768-605(2)(b) of the ITAA 1997?
Decision
Yes. CGT event I2 in section 104-170 of ITAA 1997 is 'a CGT event happening to a CGT asset' for the purposes of paragraph 768-605(2)(b) of ITAA 1997.
Facts
The taxpayer, a foreign resident funds manager owns 100% of the units of Australian Trust which is a resident trust for CGT purposes.
Australian Trust will cease to be a resident trust for CGT purposes.
The change of residency of Australian Trust will trigger CGT Event I2 under section 104-170 of ITAA 1997.
Reasons for Decision
Subsection 768-605(2) of ITAA 1997 disregards a capital gain made by a foreign resident in respect of that person's interest in a fixed trust if the capital gain relates to an asset that does not have a necessary connection with Australia. One of the eligibility tests for the exemption is contained in paragraph 768-605(2)(b) of ITAA 1997 which provides that:
the gain is attributable to a *CGT event happening to a *CGT asset of that trust or of another fixed trust in which that trust has an interest (directly, or indirectly through a *chain of fixed trusts)
* Denotes a term defined in section 995-1 of ITAA 1997
To satisfy that eligibility test in respect of the facts in this case, CGT event I2 must give rise to a gain that is attributable to 'a CGT event happening to a CGT asset' of Australian Trust (emphasis added).
While CGT event I2 happens where Australian Trust stops being a resident for CGT purposes (subsection 104-170(1) of ITAA 1997), a CGT event I2 capital gain or loss is made only to extent that the trust owns CGT assets (subsection 104--170(3) of ITAA 1997). Subsection 104-170(3) requires the trustee to work out the capital gain or loss for each CGT asset owned. This means that a capital gain made as a result of CGT event I2 relates to a CGT asset.
It follows that a capital gain made as a result of CGT event I2 is a gain that is attributable to "a *CGT event happening to a *CGT asset" for the purposes of paragraph 768-605(2)(b) of ITAA 1997.
Date of decision: 30 May 2005Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
section 104-170
subsection 104-170(1)
subsection 104-170(3)
Subdivision 768-H
section 768-605
subsection 768-605(2)
paragraph 768-605(2)(b)
section 995-1
Keywords
CGT asset with the necessary connection with Australia
CGT events I1-I2 - Australian residency ends
CGT exemptions
Entity changes
Foreign income
International tax
Ownership, interests, control & rights
Relevant CGT asset
Trust restructuring
Unit trust restructuring
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 30 May 2005 | Original statement |
| 30 April 2010 | Archived |