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Edited version of private advice
Authorisation Number: 1012651180226
Ruling
Subject: Capital gains tax
Questions
1. Will the property transfer from you to your relative trigger a capital gains tax (CGT) event?
Answer: No.
2. If a CGT event is triggered, will you be eligible for the CGT small business concessions?
Answer: Not applicable
This ruling applies for the following period(s)
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on
1 July 2013
Relevant facts and circumstances
A parcel of land was transferred to you from individual A.
The land is the subject of a deed between you and individual A which states that individual A wishes to transfer all rights, title and interest in the property to individual B, with the land to be held on trust for individual B by you.
The deed allows you to use the land in your business during your life time.
The deed requires you to transfer the land to individual B at his/her written request.
Individual B has now requested the land be transferred to him/her.
You have been using the land in your business and your turnover is less than $2 million.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 106-50
Reasons for decision
Draft Taxation Ruling TR 2004/D25 sets out the Commissioner's views as to the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a trust asset for CGT purposes. It provides that the core principle underpinning the concept of absolute entitlement is the ability of a beneficiary, who has a vested and indefeasible interest in an entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction.
A beneficiary of a trust who is absolutely entitled to a CGT asset of the trust as against the trustee is treated as the owner of the asset for CGT purposes (rather than the trustee). A direction by the settlor of the trust that the beneficiary's enjoyment of an asset be delayed is not an effective impediment.
TR 2004/D25 goes on to state, at paragraphs 141 to 144:
Beneficiary is already absolutely entitled
141. A beneficiary that is absolutely entitled to a CGT asset as against the trustee will be the relevant taxpayer if a CGT event happens to the asset. This is the effect of section 106-50 of the ITAA 1997 which provides that an act done by a trustee in relation to an asset is taken to have been done by a beneficiary that is absolutely entitled to the asset.
142. Therefore, the beneficiary (and not the trustee) will be required to account for any capital gain or loss that arises on disposal of the asset in the calculation of their net capital gain or net capital loss and hence their taxable income. This is so regardless of whether the beneficiary has always been absolutely entitled to the asset or they became absolutely entitled to it at some time after the trust commenced.
143. Because the beneficiary is the relevant taxpayer, and the capital gain or loss is included in the beneficiary's income calculations, it is not included in the net income of the trust under section 95 of the ITAA 1936.
144. Also, no CGT event happens when the legal title in an asset to which a beneficiary is absolutely entitled as against the trustee is transferred to the beneficiary.
Because individual B is taken to be the owner of the property that you hold as trustee for CGT purposes (section 106-50 of the Income Tax Assessment Act 1997), there will be no change of ownership when it is transferred to him/her.
Accordingly, no CGT event will happen when the land is transferred to individual B.
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