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Subject: capital gains tax - units - distribution from trust - tax-deferred income - adjusted cost base

Question 1: Does the receipt of the tax-deferred income in relation to your units in Syndicate A during the 2010-11 income year trigger a capital gain?

Answer: No.

Question 2: Does the receipt of the tax-deferred income in relation to your units in Syndicate B during the 2010-11 income year trigger a capital gain?

Answer: No.

This ruling applies for the following period

Income year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You acquired units when invested money in two Syndicates, Syndicate A and Syndicate B, after 20 September 1985.

During the following income years, you received tax-deferred payments in relation to both Syndicates.

Reasons for decision

For CGT purposes, the tax deferred amount is considered to be a return of capital which gives rise to CGT event E4 under section 104-70 of the Income Tax Assessment Act 1997.

The cost base and reduced cost base of the units needs to be adjusted where a unit holder receives a tax-deferred payment by the amount of the payment received. This is because the income distribution by the unit trust is not assessable to the trustee but rather is assessable in the hands of the unit holder. Therefore, every time you receive a tax-deferred payment, you make the adjustment.

Generally, you make any adjustment to the cost base or reduced cost base of your unit or trust interest at the end of the income year. However, if some other CGT event happens to the unit or trust interest during the year (for example, you sell your units) you must adjust the cost base or reduced cost base just before the time of that CGT event. The amount of the adjustment is based on the amount of non-assessable payments paid to you up to the date of sale. You use the adjusted cost base or reduced cost base to work out your capital gain or capital loss.

If the tax-deferred amount is greater than the cost base of your units, you include the excess as a capital gain in your income tax return in the income year in which the excess is received, and your cost base is adjusted to zero.

Using the amounts you have provided, the adjusted cost bases of both of the Syndicates are still above zero. Therefore, you have not made a capital gain in the 2010-11 income year as a result of receiving the tax-deferred amounts.

Note: The adjusted cost bases for your Syndicate A and Syndicate B units should be adjusted by any future tax-deferred amounts you receive in relation to those units.

If you dispose of your units, the cost base should be adjusted by any tax-deferred amounts you receive in the income year in which the units are disposed of. You use the adjusted cost base to calculate any capital gain or capital loss made on the disposal of the units.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20.

Income Tax Assessment Act 1997 Section 104-70