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Subject: Capital Gains Tax - Trusts
Question:
Is a capital gain or capital loss realised on the disposal of property owned by you as trustee of a Family Trust?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
Legal advice was obtained and pursuant to this a Trust was created after 20 September 1985.
The purpose of the trust was for asset protection.
The original solicitor has now been removed from the roll of legal practitioners and the deed has been destroyed. You do not hold a copy of the deed.
The trustee holds the assets of the trust on behalf of the beneficiaries.
An asset of the trust is a property.
The property has been the main residence of the beneficiaries.
The trustee will transfer title to the property from the trust to a beneficiary and as a result the trustee will make a capital gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Reasons for decision
Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or a capital loss as a result of a CGT event happening (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)) to a CGT asset.
The most common event (CGT event A1) happens if you dispose of a CGT asset to another entity. In this case, it will be the transfer of property from the family trust to the beneficiary (section 104-10 of the ITAA 1997).
You make a capital gain if the capital proceeds from the disposal are more than the assets cost base.
You make a capital loss if the capital proceeds are less than the assets reduced cost base.
A capital gain or capital loss is realised by the entity owning the asset and cannot be transferred to the entity receiving the asset.
Therefore the transfer of property from the Trust to a beneficiary will generate a CGT event for which CGT will be attributable to the Trust.