| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1012975490410
Date of advice: 24 February 2016
Ruling
Subject: Transfer of assets
Question 1
Will there be any income tax implications for Company B following the transfer of properties from Company A?
Answer
No
Question 2
Will any capital gain or loss on the future disposal of the transferred lots and newly constructed properties by Company B be exempt from income tax on the basis that Company B is an income tax exempt entity under Division 50 of the ITAA 1997 as all the relevant conditions contained in Subdivision 50-A of the ITAA 1997 (in particular section50-50(2) of the ITAA 1997) are satisfied?
Answer
Yes
Question 3
Will the finance company (unrelated third party) be liable for income tax or capital gains tax on the disposal of the properties as 'mortgagee in possession'?
Answer
Decline to rule
This ruling applies for the following periods:
1 July 2015 - 30 June 2016
1 July 2016 - 30 June 2017
1 July 2017 - 30 June 2018
The scheme commences on:
1 July 2015
Relevant facts and circumstances
• Company A is a registered community house provider, under Section 67D of the Housing Amendment (Community Housing Providers) Act 2007
• Company A is an endorsed charitable institution for income tax purposes in accordance with Subdivision 50-B of the Income Tax Assessment Act (ITAA) 1997. It is also an endorsed gift deductible entity under Subsection 30-15 of the ITAA 1997, item 1 of the table
• Company A is registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity
• Company A currently holds legal and beneficial title to X real property lots, of these, Y lots contain existing dwellings and the remaining Z lots contain newly built dwellings
• The X lots were conditionally vested to Company A from a statutory authority, at no cost.
• Company B is a wholly owned subsidiary of Company A
• Company B is an endorsed charitable institution for income tax purposes in accordance with Subdivision 50-B of ITAA 1997 however, it is not an endorsed gift deductible entity
• Company B is registered with the ACNC as a charity
• Company A and Company B objects are set out in the constitution of each company, as follows;
3.1(a) The Company is established for the public charitable object of providing relief against poverty, distress and helplessness in such localities within Australia as the Board may, from time to time, determine by providing, without limitation, secure, affordable and sensitively managed housing for people in housing for people in housing need and experiencing difficulties and maintaining appropriate housing
• Company A incorporated Company B in 20XX for the purpose of obtaining a new financing facility. Company A intends to use Company B as a special purpose borrower. Company A intends to raise financial facility using the security of the lots and the underlying rental cash flows to service borrowing
• The establishment of Company B serves several other purposes;
• To isolate the risk associated with a potential default on the terms of a debt facility
• As a means of asset protection for Company A
• To minimise the risk associated with the management of a large scale development
• To provide for the negation of better finance terms
• To minimise the complexity of financing arrangements
Relevant legislative provisions
Section 50-1 of the Income Tax Assessment Act 1997
Section 50-5 of the Income Tax Assessment Act 1997
Section 50-50 of the Income Tax Assessment Act 1997
Section 50-52 of the Income Tax Assessment Act 1997
Division 100 of the Income Tax Assessment Act 1997
Reasons for decision
Issue 1
Transfer of property and Capital Gains consequences
Question 1
Will there be any income tax implications for Company B following the transfer of properties from Company A?
Summary
Company B is income tax exempt
Detailed reasoning
Section 50-1 of the ITAA 1997, in conjunction with item 1.1 of the table in section 50-5 of the ITAA 1997, specifies that the total ordinary income and statutory income of a charitable institution is exempt from income tax, subject to the special conditions contained in sections 50-50 and 50-52 of the ITAA 1997. Company B has already been endorsed as a charitable institution for income tax purposes therefore it has already been determined that it meets the conditions contained in Division 50 of the ITAA 1997.
As a result, Company B is income tax exempt and therefore cannot incur income tax obligations.
Question 2
Will any capital gain or loss on the future disposal of the transferred lots and newly constructed properties by Company B be exempt from income tax on the basis that Company B is an income tax exempt entity under Division 50 of the ITAA 1997 as all the relevant conditions contained in Subdivision 50-A of the ITAA 1997 (in particular section50-50(2) of the ITAA 1997) are satisfied?
Summary
Company B is income tax exempt therefore, any capital gain or loss is also exempt
Detailed reasoning
Although, Company B has already received income tax exempt status, this does not preclude a Capital Gains Tax (CGT) event from happening to the entity. Section 102-23 of the ITAA 1997 states that a CGT event still happens, even if, a gain or loss is disregarded.
Section 104-10 of the ITAA 1997 states that CGT event A1 occurs if you dispose of a CGT asset. Disposal occurs if ownership changes from one entity to another entity, however, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.
Company B is a wholly owned subsidiary. The transfer of the lots from Company A to Company B does not change ownership of the assets as Company A remains the beneficial owner.
CGT is not considered a separate tax rather, any capital gain is included in the calculation of assessable income for income tax purposes. Company B is income tax exempt therefore any capital gain or loss is also exempt.
Question 3
Will the finance company (unrelated third party) be liable for income tax or capital gains tax on the disposal of the properties as 'mortgagee in possession'?
Summary
The Commissioner is unable to provide an answer as a ruling application may only be lodged by the entity itself, its agent or its legal personal representative. The Commissioner therefore declines to rule on this question
Detailed reasoning
A private ruling is a written expression of the Commissioner's opinion of the way in which a relevant provision applies, or would apply, to the entity whose tax affairs are the subject of the ruling, in relation to the specified scheme.
In this instance, you have asked how a provision applies to another entity. The Commissioner is unable to provide an answer as a ruling application may only be lodged by the entity itself, its agent or its legal personal representative.
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).
