| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012807962949
Ruling
Subject: CGT - main residence
Question
Is the trust entitled to disregard any capital gain or loss that results from the disposal of the property?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
An individual owned a property.
Due to their personal issues as well as rising debts, a trust was established and the property was transferred to the trust as a form of asset protection.
The individual continued to live in the property and treated it as his main residence for the entire period.
No rental income was ever collected by the trust.
The property was sold.
The trust is a fixed trust whereby all the benefits arising from the trust are to be held in trust for the individual.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 106-50
Income Tax Assessment Act 1997 Section 118-110
Reasons for decision
Capital gains tax
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that capital gains tax (CGT) is incurred when a CGT event takes place and you receive a gain from the event.
CGT events are the different types of transactions that may result in a capital gain or capital loss. The most common CGT event is CGT event A1. Section 104-10 of the ITAA 1997 explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of a CGT asset to someone else. Land and buildings are CGT assets.
Main residence exemption
Generally, you can disregard a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling if:
• you are an individual (paragraph 118-110(1)(a) of the ITAA 1997)
• the dwelling was your main residence for the whole period it was owned
• you have not have used the dwelling to produce assessable income, and
• any land on which the dwelling is situated on and adjacent to is two hectares or less
In your case, as a trust is not an individual you are not entitled to apply the main residence exemption, under paragraph 118-110(1)(a) of the ITAA 1997.
Legal v beneficial ownership
When the disposal of an asset occurs one of the most important elements in the application of the CGT provisions is ownership. Both legal and beneficial ownership must be determined. In most cases, in the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title.
Where a beneficiary is absolutely entitled to a CGT asset as against the trustee, section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) states that any act done in relation to the CGT asset by the trustee will be treated as if the act was done by the absolutely entitled beneficiary.
Example:
An individual becomes absolutely entitled to a CGT asset of a trust. The trustee later sells the asset. Any capital gain or loss from the sale is made by the individual, not the trustee.
Draft Taxation Ruling TR 2004/D25 discusses the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a CGT asset of a trust as against its trustee. TR 2004/D25 explains that the provisions dealing with capital gains and losses treat an absolutely entitled beneficiary as the relevant taxpayer in respect of the asset.
The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction.
Your circumstances
In your case, the individual is the sole beneficiary and it is considered that they are absolutely entitled to the property. As the individual has absolute entitlement to the asset held in trust, you (in your capacity as trustee) are entitled to disregard any capital gain or loss that results from the disposal of the property.
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).
