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Edited version of private ruling
Authorisation Number: 1011604764317
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Ruling
Subject: Capital gains tax - bankrupt estate
Questions
1. Is any capital gain made on the sale of a rental residential unit of a bankrupt estate assessable to you as trustee?
Answer: No
2. Is any capital gain made on the sale of a rental commercial unit of a bankrupt estate assessable to you as trustee?
Answer: No
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You were appointed trustee of the bankrupt estate of a bankrupt.
At the date of bankruptcy, the bankrupt owned a residential unit and a commercial unit.
You have been collecting rent for both units.
You are planning to sell both units.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 106-30
Reasons for decision
Section 106-30 of Income Tax Assessment Act 1997 (ITAA 1997) states that the vesting of assets in a trustee under the Bankruptcy Act 1996 is ignored for capital gains tax (CGT) purposes. The effect of this is that the asset is still considered to be owned by the insolvent person, even though the asset is vested in the trustee. The acts of the trustee in relation to the vested asset are taken to be those of the insolvent person.
Consequently, no disposal takes place on the vesting of the asset in the trustee and a disposal of the asset by the trustee is considered to be a disposal by the insolvent person.
In your case, CGT event A1 will happen when you sell the two units (section 104-10 of the ITAA 1997). The liability for CGT on the capital gain made on the sale is borne by the insolvent person, in the year of income in which the disposal occurs.