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Edited version of private advice

Authorisation Number: 1012685719417

Ruling

Subject: Capital Gains Tax

Questions and Answers

This ruling applies for the following period(s)

Year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

You are a trustee and a beneficiary of a Unit Trust

Units in the Trust were issued to you in relation to a property.

A contract to sell the property was entered into.

On 30 June 2014 the Trustees resolved that you were presently entitled to 100% of the income of the trust (including the capital gain made on the disposal of the property).

The Units were redeemed after the property was sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 subdivision 115-A

Income Tax Assessment Act 1997 subdivision 115-C

Reasons for decision

Distribution from Trust

A beneficiary who is not under a legal disability and who is presently entitled to a share of the income of a trust must include in their assessable income their share of the net income of the trust estate.

Subdivision 115-C of the ITAA 1997 sets out the rules for calculating a beneficiary's net capital gain if they are entitled to a distribution from a trust that includes a net capital gain.

For each part of a trust capital gain that was reduced by the CGT discount and which is included in the beneficiary's income, the beneficiary is treated as having made a capital gain equal to twice the trust capital gain. If the trust had applied the 50% active asset reduction then the beneficiary multiplies the capital gain by four. The beneficiary will then offset their own capital losses (if any) against this grossed-up amount or their other capital gains (if any).

If the trust used the discount method to calculate the trust capital gain, the beneficiary may also use the 50% discount with respect to their share of the trust gain. If the trust was entitled to and applied the small business 50% reduction to its capital gain, the beneficiary may apply a further 50% reduction after applying the 50% discount in calculating their net capital gain. The amount remaining is part of a beneficiary's net capital gain.

Since the grossed-up amount used is in addition to your share of the Trust's net capital gain included in the distribution from the Trust you must remember not to include your share of the trust's net capital gain twice.

Redemption of the Units

CGT event C2 occurs if your ownership of an intangible asset ends by that asset being redeemed or cancelled, therefore if you redeemed the units in accordance with the trust deed CGT event C2 happened.

Your capital gain will be the difference between the proceeds and the cost base of the units.

Where the Units are not redeemed at market value; the market value substitution rule, which replaces the proceeds with the market value of the Unit worked out at the time of the CGT event, may apply.

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