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Edited version of private ruling
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Ruling
Subject : Capital gains tax - change of trustee - transfer of shares
Question
Will a CGT event occur when you transfer the shares to the new trustee of the Trust?
Answer
No.
This ruling applies for the following period:
Income year ending 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The deceased passed away after 20 September 1985.
You and another party were the trustees of the deceased's estate (the Trust).
You jointly held a number of shares in a company (Company A) in your role as trustee the Trust.
The shares are voting rights in Company A, whose sole assets are shares in another company (Company B).
Company A has a number of shareholder classes, with some of the shareholders being relatives of the deceased.
You have no financial interest in Company A and are not a beneficiary of the Trust.
The Trust distributes its income to the deceased's relatives, or their nominated entities.
You are related to the deceased and the beneficiaries of the Trust through your spouse.
The other trustee retired from the position of trustee a number of years after the deceased passed away, at which time you solely held the shares in Company A.
Due to health issues, you are no longer able to carry on your trustee duties and you will transfer the shares under the following arrangement:
· you will no longer have any power of appointment to the Trust, and will not remain as a trustee of that trust
· you will cease to be the director of Company A
· the shares will be transferred to the new trustee for the Trust for a nominated amount; and
· control of Company A will pass to the deceased's children, enabling them to dispose of the interests in Company B without seeking approval from you.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Paragraph 104-10(2)(b)
Income Tax Assessment Act 1997 Section 104-55
Income Tax Assessment Act 1997 Section 104-60
Reasons for decision
A capital gain or loss is only made if a capital gains tax (CGT) event happens to a CGT asset. The two 'A' Class shares in ITA Investments Pty Ltd (ITA) are CGT assets.
CGT event A1
The most common CGT event, CGT event A1, occurs when you transfer your ownership interest in a CGT asset to another entity. However, a change of ownership of a CGT asset does not occur merely because of a change of trustee.
Accordingly, for example, if there is more than one trustee of a trust estate and one of the trustees retires, resigns or is removed or, being an individual, dies, there would be no CGT implications in relation to the assets of the trust estate. Similarly, if a new trustee is appointed there would be no CGT implications for the assets of the trust estate.
CGT event E1and CGT event E2
CGT event E1 occurs when you create a trust over a CGT asset by declaration or settlement, while CGT event E2 happens if you transfer a CGT asset to an existing trust. These CGT events will not happen when there is no real change in the underlying beneficial ownership of the asset as a result of the change in trustee of the trust.
Application to your case
You and another party were appointed trustees of the deceased's estate, the Trust. You and the other trustee jointly held a number of shares in Company A as trustees of the Trust. The other trustee retired and you solely hold the two shares.
Due to health issues, you are no longer able to carry on your trustee duties and you intend to transfer the shares to the new trustee for the Trust for a nominated amount.
It is considered that the change of trustee will not alter the original intentions of the deceased. Accordingly, the change of trustee will not change the beneficiaries, or the obligations of the trustee, or the terms or nature of the trust. It is viewed that the change in trustees will not give rise to a CGT event and no CGT implications will arise when the transfer of the shares to the new trustee of the Trust occurs.