ATO Interpretative Decision

ATO ID 2005/177

Income tax

Capital gains tax and foreign residents - meaning of 'happening to' an asset in Subdivision 768-H
FOI status: may be released

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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 2005

Year 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

Business Line: Public Groups and International

Date of publication: 24 June 2005

ISSN: 1445-2782

history

	Date:	Version:
You are here →	30 May 2005	Original statement
	30 April 2010	Archived

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