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Edited version of your written advice
Authorisation Number: 1012984013098
Date of advice: 11 March 2016
Ruling
Subject: Timing of CGT event
Question
In what year of income does CGT need to be reported by the "entity 2" beneficiaries to whom capital gains are distributed from the two "entity 2" entities, where entity 1 has a substituted accounting period and a CGT event as described?
Answer
The entity 2 beneficiaries will need to report CGT on their distributions from the entity 2 entities in the year of income ended 30 June 2016, as they will become presently entitled to the income and gains of the trusts in that year.
This ruling applies for the following periods:
Year of income ending 30 June 2016
The scheme commences on:
The scheme has commenced
Relevant facts and circumstances
"Entity 1" -
X Pty Ltd as trustee for the X Unit Trust trading as a business name.
"Entity 2" -
1. Y Pty Ltd as trustee for the A Family Trust - 50% of units.
2. Z Pty Ltd as trustee for the B Family Trust - 50% of units.
Entity 1 has a substituted accounting period (31 August reporter) and entity 2 entities are both 30 June reporters.
On dd/mm/yyyy, entity 1 sold its business assets.
After 30 June 20XX, the entity 2 discretionary trusts will distribute capital gains to their individual beneficiaries. This will occur on completion of the financial accounts and lodgement of tax returns.
Relevant legislative provisions
Section 104-75 of the Income Tax Assessment Act 1997
Reasons for decision
Section 104-75 of the Income Tax Assessment Act 1997 provides that CGT event E5 happens if a beneficiary becomes "absolutely entitled" to a CGT asset of a trust as against the trustee.
The time of the event is when the beneficiary becomes absolutely entitled to the asset (subsection 104-75(2)).
The sale of business assets by entity 1 on dd/mm/yyyy is a disposal of those assets (CGT event A1) and is reportable at the Unit Trust level in the year of income ending 31 August 20XX.
The subsequent reporting of a capital gain by "entity 2" entities and individual beneficiaries to whom capital gains are distributed from the entity 2 discretionary trusts will occur where the beneficiaries become "absolutely entitled" to the income and gains of the trusts.
This will occur on or after 31 August 20XX and will be confirmed by the financial accounts and tax returns of the entity 2 discretionary trusts, as well as the relevant trust deeds.
CGT event E5 will occur in these circumstances. The time of this event is when the beneficiary becomes absolutely entitled to the income and gains of the trust.
The entity 2 beneficiaries will need to report CGT on their distributions from the entity 2 entities in the year of income ended 30 June 20XX, as they will become presently entitled to the income and gains of the trusts in that year.