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Edited version of your written advice
Authorisation Number: 1051260393798
Date of advice: 1 August 2017
Ruling
Subject: Transfer of assets
Question 1
Are there any capital gains tax liabilities on the transfer of ownership from the foreign trust to your Australian resident trust?
Answer:
No.
Capital gains tax (CGT) event A1 happens if an entity disposes of a CGT asset (subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)).
A gain or a loss arising from CGT event A1 will be disregarded for CGT assets acquired before 20 September 1985 (subparagraph 104-10(5)(a).
CGT event A1 occurred on the transfer of the Trust property from the trustees of the foreign trust to the trustees of the newly-formed partnership. Subparagraph 104-10(5)(a) applies as the assets being transferred were acquired prior to 20 September 1985.
Subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) includes in the assessable income of a beneficiary an amount, being property of a trust estate, that is paid or applied for the benefit of a resident beneficiary. To the extent that any amount arising from the transfer of the goodwill is included in the assessable income of a resident beneficiary under subsection 99B(1) of the ITAA 1936, that amount will be excluded by reason of subsection 99B(2) of the ITAA 1936.
As the capital gain from the transfer of the pre-CGT assets will be disregarded under subsection 104-10(5) of the ITAA 1997, then subsection 99B(2) of the ITAA 1936 applies to exclude it from the resident Trust’s assessable income.
This ruling applies for the following period:
Year ended 30 June 2017
The scheme commenced on:
1 July 2016
Relevant facts and circumstances
You are a citizen of country X and have been living in Australia for over 10 years.
Both you and your spouse are temporary residents of Australia.
You receive a one third distribution from a property held in a foreign trust. The property of the trust is of a commercial rental nature.
The property in the trust was originally acquired pre-CGT and is considered non-Australian taxable property.
The foreign trust did not result from a deceased estate and was established pre-CGT.
The Trustee of the foreign trust was a country X insurance company.
The foreign trust was established to make provision for the settlor’s spouse as well as children and grandchildren. You are one of the children of the settlor.
You have always declared this income in your income tax returns.
The beneficiaries of the foreign trust (along with the trustee) have transferred the property from the trust into a partnership arrangement after 20 September 1985. The transfer was affected by a restructure from the original trust to a partnership of three trusts. The trusts that formed the partnership are made up of the same beneficiaries with added spouses of the children of the settlor.
No money changed hands; the properties were transferred from the vendors to the purchasers.
The partnership agreement sets out the terms upon which the partners will own and manage the properties.
Neither of your children are temporary residents and your spouse is a temporary resident.
You are director of a registered Australian proprietary corporate trustee company which is trustee of your Australian family trust the XYZ Family Trust.
You still receive one third of the income of the partnership distributed to your trust which was set up to receive the distribution when the property was transferred to the partnership.
The Trustee of the original foreign trust had 'absolute and uncontrolled discretion’ at any time before the date of distribution to pay or apply the whole or any part of the current net annual income and/or the whole or any part of the capital of the Trust Fund to the beneficiaries
The original foreign trust was wound up subsequent to the assets being transferred.
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