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Edited version of your private ruling
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Ruling
Subject: Capital gains tax - trust and disposal of main residence
Question: Is the capital gain made by the trust on the disposal of the property used by the beneficiary as their main residence disregarded?
Answer: Yes
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Following a road accident in which person A received severe head injuries a special trust was set up some time after 20 September 1985 - the person A Trust (the trust) to hold settlement monies of a specified amount received from an organisation.
The trustees of the trust are person B and person C, person A's parents.
Some time later the trust purchased a property (the property).
Person A moved into the property and established it as their main residence.
Some time later the trust disposed of the property and made a capital gain.
You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling:
o correspondence from a Consultant Psychiatrist
o correspondence from a solicitor
o Deed of Settlement
o Deed of Variation of Gift
o REIV Contract Note - the property
o Statement of Adjustments
o correspondence from a trustee of the trust, and
o information from Australian Taxation Office website - Changes to taxation of special disability trusts.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 106-50
Income Tax Assessment Act 1997 Section 118-110
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
The most common CGT event (CGT event A1) happens if you dispose of a CGT asset, such as property to someone else. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs.
CGT event A1 occurred upon the disposal of the property.
Main residence exemption
Generally, you can ignore a capital gain or loss you make on the disposal of a dwelling that was your main residence if:
o you are an individual, and
o the dwelling was you main residence throughout your ownership period, and
o the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.
In most cases the full exemption will apply where an individual or individuals own a dwelling and occupy it as a main residence.
Ordinarily a trust cannot apply the main residence exemption as the entity making the gain must be an individual. However, where a beneficiary is absolutely entitled as against the trustee to the dwelling and it is the main residence of that beneficiary the main residence exemption would be available. This is because the CGT provisions apply to an act done by the trustee as if it were an act done by the beneficiary where the beneficiary is absolutely entitled to a CGT asset against the trustee
For the purposes of determining absolute entitlement any legal disability suffered by the beneficiary is ignored. In other words, if the only thing that prevents a beneficiary from being absolutely entitled under the rule in Saunders v. Vautier (1841) 4 BEAV 115; 49 ER 282 is their legal disability, then they will be absolutely entitled for the purposes of the CGT provisions.
As person A is absolutely entitled to the dwelling, the main residence exemption is available.
It is also considered that the terms of the trust deed indicate that the beneficiary, person A has an equitable interest in the dwelling which would be considered an ownership interest.
Therefore, the capital gain made on the disposal of the property is disregarded.