ATO Interpretative Decision
ATO ID 2002/955
Income Tax
Capital gains tax: Trust to company rolloverFOI status: may be released
-
This ATO ID was amended by replacing the references to TD 97/15 and TD 97/15A with a reference to TD 2003/28.This 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is a trust to company rollover available under Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) where one of the beneficiaries of the trust owns an interest in the trust that only has a discretionary income entitlement and no capital entitlement?
Decision
No. Paragraph 124-855(1)(b) of the ITAA 1997 requires that CGT event E4 (capital payments for trust interest) in section 104-70 of the ITAA 1997 must be capable of applying to all interests in the trust. CGT event E4 does not apply where a trust interest is merely discretionary.
Facts
The taxpayer carries on a business through a unit trust. The trust has two classes of unitholders. One class owns interests with capital and income rights. The other class, comprising of a single unitholder, owns an interest with a discretionary income entitlement and no capital entitlement.
Reasons for Decision
Section 124-850 of the ITAA 1997 states that an entity may choose to obtain a rollover where a trust disposes of all of its assets to a company and units and interests in the trust are replaced with shares in the company.
Section 124-855 of the ITAA 1997 outlines when a rollover for trust restructuring may be available. Specifically, paragraph 124-855(1)(b) of the ITAA 1997 states that in order for the rollover to be available CGT event E4 must be capable of applying to all of the units and interests in the trust.
A beneficiary with only a discretionary interest in a trust does not own an interest of the nature or character referred to in section 104-70 of the ITAA 1997.
CGT event E4 cannot apply to an interest in a trust where a beneficiary only owns an interest with a discretionary income entitlement and no capital entitlement. Therefore, paragraph 124-855(1)(b) of the ITAA 1997 is not satisfied and the rollover contained in Subdivision 124-N of the ITAA 1997 is not available.
Amendment History
| Date | Part | Comment |
|---|---|---|
| 8 August 2014 | All | Updated for clarity. |
Year of income: Year ending 30 June 2003 Year ending 30 June 2004 Year ending 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
Subdivision 124-N
subsection 104-70
section 124-850
paragraph 124-855(1)(b)
Related Public Rulings (including Determinations)
Taxation Determination TD 2003/28
Keywords
Capital gains tax
Capital gains
CGT roll-over relief
CGT events
CGT events E1-E9 - trusts
CGT replacement asset rollover
Date reviewed: 21 March 2017
ISSN: 1445-2782
| Date: | Version: | |
| 27 August 2002 | Original statement | |
| You are here | 8 August 2014 | Updated statement |
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
