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Edited version of private advice
Authorisation Number: 1052141769019
Date of advice: 5 March 2024
Ruling
Subject: 99B
Question
Will the portion of the distribution amount you receive that represents compensation that relates to the disposal of a pre-CGT asset from the Trusts be non-assessable?
Answer
Yes.
The Trusts received compensation for capital losses, equivalent to the value of the pre-CGT assets that were lost. The compensation the Trusts received is directly related to the pre-CGT asset and is therefore CGT-exempt.It will be non-assessable to you when the Trusts distribute the portion that represents the compensation.
This ruling applies for the following period:
Income year ending 30 June 20XX
The scheme commenced on:
30 June 20XX
Relevant facts and circumstances
You are a discretionary beneficiary of the Trusts that were established in a foreign country.
None of the trustees of the trust are residents of Australia for tax purposes and the management and control of the trusts is exercised in the foreign country.
Prior to 20 September 1985, the Trusts each had 100% of their share interests in Company A.
Post 20 September 1985, the trustee of the trusts exchanged all ordinary shares in Company A for preference shares in Company B. Company B was an offshore company controlled by the Trustee.
Several years later, the beneficiaries of the Trusts brought a claim against the Trustee for fraudulent breaches of trust. Specifically, the beneficiaries alleged that the Company A shares were wrongfully transferred by the Trustee from the Trusts to Company B and as a result, the Trusts suffered a loss.
As a result, the beneficiaries of the Trusts and the Trustees entered a settlement agreement whereby the Trustees agreed to pay an amount to the Trusts in settlement of claims that the Trusts suffered capital losses. The compensation was apportioned to each Trust in accordance with the amount of ordinary shares that were transmitted.
The Trusts are now in the process of making a distribution to the beneficiaries. You expect to receive a total distribution of around XX from the Trusts.
Assumptions
The amount the Trusts are to receive for compensation represents the capital losses as a result of the exchange of the Company A shares.
The distribution you are to receive represents a portion of the compensation received by the Trusts pursuant to the Settlement Agreement.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 99B
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