Edited version of private ruling

Authorisation Number: 1011624592106

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Ruling

Subject: Capital gains tax (CGT) - Main residence - Trust

Is the family trust entitled to the full main residence exemption on the disposal of the property?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Four years ago a family trust purchased a property.

The trustees of the family trust were you and your child.

The family trust (a discretionary trust) lists primary, secondary and tertiary beneficiaries.

You and your child are the primary beneficiaries of the family trust.

Since the purchase of the property you and your child have resided in the property as your main residence.

The family trust does not own any other properties.

Your child requested that they be removed from the family trust as trustee.

Several months ago your child was removed as a trustee of the family trust.

You, as trustee, are now going to dispose of the property.

You have provided copies of documentation to support your application and these documents are to be read with and forms part of the scheme for the purpose of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 106-50

Reasons for decision

Generally, you can ignore a capital gain or capital loss you make on the disposal of a dwelling that was your main residence if:

· you are an individual

· the dwelling was your main residence throughout your ownership period, and

· the interest did not pass to you as a beneficiary, and you did not acquire it as a trustee of the estate of a deceased person.

The issue of the main residence exemption being available to a company or trust was addressed in withdrawn Taxation Determination TD 58.

TD 58 was withdrawn as it involved a straight application of the law. The notice of withdrawal stated that:

Subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) makes it clear that in the general case, the main residence exemption is only available to an individual (defined in subsection 995-1(1) of the ITAA 1997 as a natural person). Subsection 960-100(4) of the ITAA 1997 goes on to provide that if a provision refers to an entity of a particular kind, it refers to the entity in its capacity as that kind of entity and not in any other capacity.

While you and your child as beneficiaries have occupied the dwelling it is owned by the trust, an entity that is not an individual, as such when you, as trustee, sell the dwelling the main residence exemption will not apply to disregard any capital gain or capital loss made.

Absolutely entitled beneficiary

Where a beneficiary of a trust is absolutely entitled as against the trustee of the trust, an exemption may be available to the beneficiary if the dwelling is the principle residence of the beneficiary. This is because the capital gains tax (CGT) provisions apply to an act done by the trustee as if it were an act done by the beneficiary.

However, in your case, the family trust is a discretionary trust as the trustee has a wide range of powers and there is more than one beneficiary. Consequently, none of the beneficiaries are absolutely entitled to the property.