Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 112 - Modifications to cost base and reduced cost base  

Subdivision 112-E - Deemed sales just before, and reacquisitions on, 1 July 2027  

SECTION 112-170   Trusts - defer a gain or loss from the deemed sale until the later realisation event happens  
Application

112-170(1)    
This section applies in relation to a * CGT asset of a trust estate if, under paragraph 112-165(2)(a) , the trust estate makes:

(a)    a * capital gain (the initial notional gain ); or

(b)    a * capital loss (the initial notional loss );

in respect of the asset (disregarding subsection (2) of this section).

Note:

The initial notional gain or loss is made from the sale that is taken to happen at the end of 30 June 2027 (see paragraph 112-165(2)(a) ), and is disregarded under subsection (2) of this section.

Disregard the initial notional gain or loss because it is to be deferred

112-170(2)    
Disregard the initial notional gain or the initial notional loss, except for the purposes of subsection (3) or (4) .

Deferring an initial notional gain

112-170(3)    
If the trust estate made an initial notional gain, then for the purposes of Division 102 and Subdivision 115-C :

(a)    in the income year in which the * realisation event happens in relation to the * CGT asset - treat the trust estate as having made a * capital gain (the trust ' s deferred gain ):

(i) for the * CGT event that happens under paragraph 112-165(2)(a) (the deemed CGT event ); and

(ii) that is a * discount capital gain if the initial notional gain is a discount capital gain; and

(iii) that is equal to the amount of the initial notional gain; and

(b)    disregard section 102-20 in relation to the trust ' s deferred gain; and

(c)    for the purposes of subparagraph (a)(ii) of this subsection, in working out whether the initial notional gain is a discount capital gain, treat the deemed CGT event as if it happens on the day the realisation event happens; and

(d)    in working out whether, under step 6 of the method statement in subsection 102-5(1) , the trust ' s deferred gain qualifies for any of the small business concessions, treat the deemed CGT event as if it happens on the day the realisation event happens.

Note 1:

For paragraph (a) , the realisation event is the CGT event referred to in paragraph 112-165(1)(c) .

Note 2:

Paragraph (c) is relevant for working out whether the 12-month rule in subsection 115-25(1) is satisfied for the initial notional gain.

Note 3:

If the initial notional gain is a discount capital gain, then under step 5 of the method statement in subsection 102-5(1) , the 50% discount mentioned in paragraph 115-100(ab) can apply to the trust ' s deferred gain.

Note 4:

A beneficiary of the trust may also be taken to have made, because of section 115-215 , a capital gain in relation to the trust ' s deferred gain.

Deferring an initial notional loss

112-170(4)    
If the trust estate made an initial notional loss, then for the purposes of Division 102 :

(a)    in the income year in which the * realisation event happens in relation to the * CGT asset - treat the trust estate as having made a * capital loss (the trust ' s deferred loss ) equal to the amount of the initial notional loss; and

(b)    disregard section 102-20 in relation to the trust ' s deferred loss.

Note 1:

For paragraph (a) , the realisation event is the CGT event referred to in paragraph 112-165(1)(c) .

Note 2:

The trust estate may make a separate capital loss from the realisation event for the period starting on 1 July 2027. In working out whether the trust estate makes a capital loss from the realisation event for this period, the trust estate is taken to have acquired the CGT asset at the time, and for the amount, mentioned in paragraph 112-165(2)(b) .

Note 3:

The trust ' s deferred loss, and any separate capital loss referred to in note 2, are taken into account to work out whether the trust estate has a net capital gain for the income year in which the realisation event happens. If the trust estate does, then a beneficiary of the trust may also be taken to have, because of section 115-215 , an extra capital gain for that income year.

Working out whether concessions are available for a capital gain from the realisation event

112-170(5)    
In working out when the trustee * acquired the * CGT asset for the purposes of working out whether the trust estate ' s * capital gain resulting from the * realisation event is a * discount capital gain, disregard the sale and acquisition under subsection 112-165(2) .

Note:

If the trust estate make a capital gain from the realisation event in respect of the asset, this subsection is relevant for working out whether the 12-month rule in subsection 115-25(1) is satisfied for the capital gain.

112-170(6)    
In working out whether, under step 6 of the method statement in subsection 102-5(1) , the trust estate ' s * capital gain resulting from the * realisation event qualifies for any of the small business concessions, disregard the sale and acquisition under subsection 112-165(2) .

Note 1:

Subsections (5) and (6) refer to the capital gain from the realisation event for the period starting on 1 July 2027. The sale and reacquisition under subsection 112-165(2) remain relevant for working out the amount of this capital gain, just not for whether this capital gain:

(a) is a discount capital gain; or

(b) qualifies for any of the small business concessions.

Note 2:

A beneficiary of the trust may also be taken to have made, because of section 115-215 , a capital gain in relation to the capital gain of the trust estate referred to in subsections (5) and (6) .