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Edited version of your written advice
Authorisation Number: 1012927400642
Date of advice: 18 December 2015
Ruling
Subject: Capital gains tax
Question 1:
Was your family member absolutely entitled for the purpose of section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) to certain assets held by you?
Answer:
Yes.
Question 2:
Did the transfer of the legal title of the assets from you to your family member trigger CGT event A1 under section 104-10 of the ITAA 1997?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts.
A family member held certain CGT assets.
The family member received income from the CGT assets and declared the income in their income tax returns.
The family member contacted you and advised they were unable to manage their financial affairs. They were concerned that they may sell the assets and spend the proceeds which would leave them in significant financial difficulty.
You agreed at the family member's request to transfer legal title of the assets to you on the understanding that the family member would remain the true owner of the assets and that:
• any expenses relating to the assets would be paid using any income received from the assets
• after expenses the income would be paid to your family member
• you would not buy or sell any of the assets
• the arrangement would only be for the short to medium term
• you would then transfers legal title back to your family member.
Legal title to the assets, were transferred to you for no consideration.
You received income from the assets.
The income was paid into your bank account and tax was withheld and the balance was paid to the family member.
You included the income received in your tax returns and applied the tax withheld towards the payment of the tax assessed on the income.
After some years you sent a transfer form to the family member requesting that the assets be transferred back to them as you no longer wished to hold legal title. You did not receive a response.
Several years later you again sent a transfer form to the family member but did not receive a response.
You later received a letter from the family member requesting that the assets you held be transferred back into the family member's name.
You transferred legal title to the assets to the family member for no consideration.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 104-10(1)
Income Tax Assessment Act 1997 Section 106-50
Reasons for decision
On the basis of the information provided the Commissioner accepts that a trust arose when you acquired the assets. The terms of the trust included that you would hold the shares for your family member's benefit and would deal with the shares on their behalf and transfer the ownership of the assets upon their request.
Was your family member absolutely entitled to the assets you held as trustee?
A beneficiary of a trust who is absolutely entitled to a CGT asset of the trust as against the trustee is treated as the owner of the asset for CGT purposes (rather than the trustee). Further, any act done in relation to the asset by the trustee is taken to be done by the beneficiary. (Refer to section 106-50 of the ITAA 1997).
Draft Taxation Ruling TR 2004/D25 sets out the Commissioner's views as to the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a trust asset for CGT purposes. It provides that the core principle underpinning the concept of absolute entitlement is the ability of a beneficiary, who has a vested and indefeasible interest in an entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. Your circumstances come within the terms of this Ruling.
The nature of the trust in this case meant that you were required to deal with the assets only at the direction of your family member. In these circumstances, it is considered that your family member was absolutely entitled to the assets.
Did the transfer of the assets to your family member trigger a CGT event?
Because your family member is taken for CGT purposes (by virtue of section 106-50) to be the owner of the shares that you held as trustee, there was no change of ownership when the assets were transferred to your family member.
Accordingly, CGT event A1 did not happen when the assets were transferred.