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Edited version of your written advice
Authorisation Number: 1013004048970
Date of advice: 28 April 2016
Ruling
Subject: Capital gains tax
Question 1
Did a capital gains tax event involving you occur when the court orders were made?
Answer
No.
Question 2
When the properties are sold, will your cost base for acquiring the properties equal to the net proceeds paid to the beneficiaries?
Answer
Yes.
Question 3
When the properties are sold, will your capital proceeds be equal to the net proceeds paid to the beneficiaries?
Answer
Yes.
Question 4
Do you have an obligation to lodge a trust tax return if they do not receive any other form of income from the properties?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2015.
Relevant facts and circumstances
You were appointed as trustees of statutory trusts created by Supreme Court orders.
You were appointed as statutory trustees for the purpose of selling two properties.
Prior to the court orders, the properties were held by the owners as tenants in common.
Following the court orders, the equitable owners of the properties became the beneficiaries of the statutory trusts in their respective shares.
You have not applied for an ABN and you are not registered for GST in your capacity as trustees under the statutory trusts.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Subsection 104-10(1)
Income Tax Assessment Act 1997 - Section 104-55
Income Tax Assessment Act 1997 - Subsection 110-25(2)
Income Tax Assessment Act 1997 - Subsection 110-55(2)
Income Tax Assessment Act 1936 - Section 161
Reasons for decision
The Court order caused a change of ownership in circumstances where two CGT events need to be considered:
• CGT event A1 about changes of ownership, and
• CGT event E1 about creating a trust over an asset
Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides CGT event A1 happens if you dispose of a CGT asset. ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1?, states that the making of the court order effects a disposal of the property from the joint owners to the trustees for sale by operation of the law. Therefore, CGT event A1 happens for each joint owner.
ATO ID 2009/129 also explains that CGT event E1 under section 104-55 of the ITAA 1997 does not occur when a court order effects a disposal of the property from the co-owners to the trustees. This is because section 104-55 of the ITAA 1997 states that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of a court order).
Consequently, a CGT event did not happen to you when the court orders were made.
However, you will trigger CGT event A1 when the properties are sold. Under the general cost base and reduced cost base rules covered under subsections 110-25(2) and 110-55(2) of the ITAA 1997, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of the property given (or required to be given) in respect of acquiring it.
As you undertook an obligation as trustees to pay the net proceeds of the sale to the former owners of the properties, your payment of the net proceeds to them will be your cost of acquisition ('the money you are required to pay') for the purposes of subsections 110-25(2) and 110-55(2) of the ITAA 1997.
As the proceeds from the sale of the properties will be identical to your costs of acquiring them, there will be no capital gain. As you, as trustees, will derive no income from the sale of the properties there will be no obligation for you to lodge a trust tax return under section 161 of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the sale of the properties. Table L, of the legislative instrument that sets out lodgement obligations each income year, states a trust must have derived income for a lodgement obligation to arise.
However, if you as trustees have derived other income in relation to the properties, such as rental income, then there will be an obligation upon you to lodge a trust tax return under section 161 of the ITAA 1936 in respect to that other income.