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Edited version of your private ruling

Authorisation Number: 1012254771092

Ruling

Subject: Beneficiary of a trust estate CGT Event E5

Question 1

Has CGT event E5 happened to the situation of the taxpayer in respect of this particular factual situation?

Answer

No.

This ruling applies for the following periods:

1 July 2011 to 30 June 2012

The scheme commences on:

1 July 2011.

Relevant facts and circumstances

The taxpayer is a beneficiary of the Trust Estate ("the Trust") established under a deed.

A clause of the deed provides that upon a certain event happening, the date on which that event happens is called the "Vesting Date". That event happened during the 2012 income year.

The assets of the Trust include certain CGT assets.

There is no evidence of any agreement (outside the terms of the deed) concerning any entitlement of the taxpayer to a precise number of the CGT assets. Indeed there was no such agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-75(1)

Summary

The relevant clause of the deed stating the Vesting Date did not cause the taxpayer to become absolutely entitled as against the trustee to any of the relevant CGT assets of the Trust and as such CGT Event E5 did not happen to the situation of the taxpayer.

Detailed reasoning

The Vesting Date according to the Deed was upon the occurrence of a certain event. Because this event occurred during the 2012 income year, the particular date on which the event happened is the Vesting Date.

The Deed also stated that on the Vesting Date the beneficiaries would hold their entitlements as tenants-in-common in equal shares. As such, there being X relevant beneficiaries on the Vesting Date, the taxpayer had from that time a set% equitable interest in all of the nominated CGT assets still in the estate on Vesting Date.

Relevantly, subsection 104-75(1) of the Income Tax Assessment Act 1997, reads as follows:

The taxpayer is a beneficiary of the Trust and the relevant assets are CGT assets of the Trust.

The determinative question then is whether the taxpayer, being a beneficiary with a shared interest in the relevant CGT assets, is absolutely entitled to one or more of those assets as against the trustee.

TR 2004/D25 is a Draft Taxation Ruling bearing the following title:

Though not part of the TR, the cover sheet provides the following information:

At paragraph 10 of that TR is expressed the so-called "Core principle":

The taxpayer has an interest in all the relevant CGT assets, but in respect of each CGT asset the other beneficiaries also have interests. Relevantly, paragraph 23 of the TR declares as follows:

But paragraph 24 explains an exception:

There is, however, a particular circumstance where such a beneficiary can be considered absolutely entitled to a specific number of the trust assets for CGT purposes. This circumstance is where:

Though not formally part of the Ruling, paragraphs 121 to 126 serve to show the very high evidentiary standard, in respect of the final dot point, required of relevant parties who would seek to assert absolute entitlement in these kinds of circumstances:

Note especially the "example" in paragraph 125. This indicates that the taxpayer will not have been absolutely entitled to any of the relevant CGT assets at the Vesting Date. If anything, the taxpayer is in a weaker position to assert absolute entitlement than one of the hypothetical beneficiaries in the "example" because the CGT assets in the estate on the Vesting Date were held in numbers that were not equally divisible by the number of beneficiaries, weakening any argument that entitlement to a particular number of CGT assets by each of the beneficiaries should fairly be inferred.

The taxpayer, being a "tenant-in-common beneficiary" in respect of CGT assets of the Trust (i.e. "there is more than one beneficiary with interests in the trust asset(s)") cannot call for any one or more of those assets to be transferred to him or at his direction because the entitlement is not to one or more entire assets. As such, the taxpayer is not absolutely entitled to one or more of those assets against the trustee. As such, CGT event E5 did not happen "to [this] situation" (see subsection102-25(1)).


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