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Edited version of your private ruling
Authorisation Number: 1012589843983
Ruling
Subject: Absolute entitlement
Question 1
Are the beneficiaries of the trust considered absolutely entitled to the land for the purposes of CGT?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
The trust has more than one beneficiary.
The trust owns land, purchased post CGT.
All beneficiaries are equally entitled to the land. They have paid all expenses for the land since its acquisition. They have since constructed a dwelling on the property.
The beneficiaries would like to transfer the land into their personal names.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-75 and
Income Tax Assessment Act 1997 Section 106-50.
Reasons for decision
A CGT event E5 happens if a beneficiary becomes 'absolutely entitled' to a CGT asset of a trust as against the trustee (section 104-75 of the Income Tax Assessment Act 1997 (ITAA 1997)).
Section 106-50 of the ITAA 1997 advises that if a beneficiary is absolutely entitled to a CGT asset as against the trustee of a trust, any act done by the trustee in relation to the asset is treated as if it were done by the beneficiary.
Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 explains the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a CGT asset of the trust as against its trustee.
Commencing at paragraph 23, TR 2004/D25 explains where more than one beneficiary has an interest in the trust assets absolute entitlement can only be established if the assets are fungible. Assets are fungible if each asset matches the same description such that one asset can be replaced with another, or if they are of the same type.
Land is rarely fungible because each parcel is unique (paragraph 94 of TR 2004/D25). Real estate is traded based on the actual sale price, not the sale price per unit. This is because the value of one part of the land may have better views and access to the main street than another part of the land and therefore be worth more. Unlike fungible commodities, parcels of real estate do not have equal value.
In your case, there are multiple beneficiaries equally entitled to the property of the trust, and the property is not a fungible asset. Accordingly, the beneficiaries of the trust cannot be absolutely entitled to the property of the trust as against the trustee.
Subsequently, as the requirements for absolute entitlement within the context of the CGT provisions cannot be satisfied, CGT event E5 will not occur.