ATO Interpretative Decision
ATO ID 2003/330 (Withdrawn)
Income Tax
Capital gains tax: application of CGT event E2 - unit trust transfers asset to a discretionary trustFOI status: may be released
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This ATO ID has been withdrawn as the ATO view on this matter now appears in Taxation Ruling TR 2005/D15This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does the exception in paragraph 104-60(5)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the transfer of assets from a unit trust to a discretionary trust?
Decision
No. The beneficiaries and terms of the trusts are not the same. Therefore, the exception in paragraph 104-60(5)(b) of the ITAA 1997 does not apply.
Facts
The assets of a unit trust were transferred to a discretionary trust in February 2002. The assets were acquired by the unit trust after September 1985.
The terms of the trust deeds vary considerably. The unit trust deed has clauses relating to distributions to unit holders in proportion to the number of units held. The discretionary trust deed has clauses which allow the trustee to exercise a discretion as to which beneficiaries receive a distribution and the amount of each distribution.
The beneficiaries of the unit trust and the discretionary trust are not the same.
Reasons for Decision
CGT event E2 happens if you transfer a CGT asset to an existing trust: subsection 104-60(1) of the ITAA 1997. The event happens when the asset is transferred: subsection 104-60(2) of the ITAA 1997. As a unit trust has transferred an asset to a discretionary trust, CGT event E2 has happened unless the exception in paragraph 104-60(5)(b) of the ITAA 1997 applies.
The exception in paragraph 104-60(5)(b) of the ITAA 1997 applies if an asset is transferred to a trust from another trust and the beneficiaries and terms of both trusts are the same.
The principal feature of the unit trust is that the beneficiaries (referred to as 'unitholders') have a fixed interest in the property of the trust. According to the trust deed, the trustee of the unit trust is not conferred a discretion as to the selection of beneficiaries or the quantum of their interest. Each unit entitles the holder to an undivided share in the income of the trust and a fixed proportion of the trust property on dissolution. The extent of this interest is determined by the proportion of the total units held by the unit holder.
The discretionary trust deed says the trustee of that trust may exercise a discretion as to whether the trust income should be distributed and, if exercised, which beneficiaries should share in the distribution of the trust income. Hence, beneficiaries of the discretionary trust have no interest in the trust property until the trustee exercises the discretion in their favour.
Accordingly, as the beneficiaries and terms of the unit trust and the discretionary trust are not the same, the exception in paragraph 104-60(5)(b) of the ITAA 1997 does not apply.
Date of decision: 10 April 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 104-60(1)
subsection 104-60(2)
paragraph 104-60(5)(b)
ATO ID 2002/1012
Keywords
CGT events
Capital gains tax
CGT events E1-E9 - trusts
ISSN: 1445-2782
| Date: | Version: | |
| 10 April 2003 | Original statement | |
| You are here | 28 September 2005 | Archived |