| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051187279626
Date of advice: 7 February 2017
Ruling
Subject: Income tax - exemption from income tax
Question 1
Is the taxpayer able to self-assess as an income tax exempt entity under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Is the taxpayer eligible for a market value cost base as a transition taxpayer on the sale of the Property under Division 57 of Schedule 2D of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes
This ruling applies for the following periods:
Income year ended 30 June 20XX
Income year ended 30 June 20YY
The scheme commences on:
The scheme has already commenced
Relevant facts and circumstances
The taxpayer was incorporated in the mid-1980s.
The taxpayer was established for educational purposes.
The taxpayer at all relevant times owned the property (the Property) at which educational activities were conducted.
The taxpayer had a Liquidator appointed in 20XX.
The taxpayer officially closed 20XX.
The Property was sold soon after.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 57-5
Income Tax Assessment Act 1936 section 57-25
Income Tax Assessment Act 1997 section 50-1
Income Tax Assessment Act 1997 section 50-5
Income Tax Assessment Act 1997 section 50-55
Income Tax Assessment Act 1997 section 50-47
Reasons for decision
Question 1
During the period of the taxpayer's existence, there have been amendments to the law in respect of income that is exempt from tax.
The taxpayer was entitled to self-assess itself as an income tax exempt entity for the period commencing from incorporation to the date it ceased operations.
Question 2
Under section 57-5 of Schedule 2D of the ITAA 1936, a taxpayer is a transitional taxpayer where at a particular time the taxpayer's income was wholly exempt from income tax and immediately after that time, the taxpayer's income became assessable to any extent. The transition time is the time the income becomes assessable and the year in which the transition time occurred is the transition year for the purposes of Division 57 of Schedule 2D of the ITAA 1936.
The taxpayer is a transitional taxpayer. The transition time is in 20XX and the transition year is the 20WW-XX income year.
Section 57-25 of Schedule 2D of the ITAA 1936 applies to the disposal of an asset by a transition taxpayer after a transition time provided the transition taxpayer owns the asset at all times from the transition time to the disposal time.
Where the above criteria is satisfied, subsection 57-25(2) of Schedule 2D of the ITAA 1936 provides the transition taxpayer is taken to have sold, immediately before the transition time, each of its assets and to have purchased each asset again at the transition time for consideration equal to the asset's adjusted market value (subject to certain exclusions).
An asset's adjusted market value at a transition time is defined in subsection 57-25(3) of Schedule 2D of the ITAA 1936. The adjusted market value is the market value of the asset at the transition time:
● reduced by the amount of income received (or receivable) in respect of the asset at or after the transition time and not included in the transition taxpayer's assessable income; and
● increased by the amount of income received (or receivable) in respect of the asset before the transition time and not included in the transition taxpayer's assessable income.
Under subsection 57-25(2A) of Schedule 2D of the ITAA 1936, in determining the capital gains tax consequences from a CGT event that happens after the transition time in respect of an asset, the cost base (or reduced cost base) at the transition time is its adjusted market value.
The asset in question is the Property and the taxpayer owned the Property at all times from the transition time through to the ultimate disposal of the Property.
As no exclusions apply, the taxpayer will be taken to have disposed of and re-acquired the Property at the transition time for consideration equal to the asset's adjusted market value. The Property's adjusted market value will be its cost base (or reduced cost base) for working out the CGT consequences of the ultimate disposal of the Property.