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Edited version of your written advice
Authorisation Number: 1051422142715
Date of advice: 30 August 2018
Subject: CGT - transfer of shares
Question
Will a capital gain (or loss) arise when the trustee transfers shares held in trust for the beneficiaries to them?
Answer
No
According to paragraphs 84 – 88, of TR 2004/D25 a beneficiary with a vested and indefeasible interest in trust assets where one or more other beneficiaries also have an interest in those assets will nonetheless be considered absolutely entitled to a specific number of the trust’s assets if certain factors are present.
● Assets must be fungible
● The beneficiary is entitled against the trustee to have their interest in those assets satisfied by a distribution or allocation in their favour of a specific number of them; and
● There must be a very clear understanding on the part of all relevant parties that the beneficiary is entitled to the exclusions of the other beneficiaries to a specific number of the trust’s assets.
In this case, the factors outlined TR 2004/D25 are present. The beneficiaries are considered absolutely entitled to the assets. Therefore, a CGT event will not occur when the legal title is passed from the trustee to the beneficiaries.
Question
Is the relevant acquisition date and cost of the shares for the beneficiaries that of the trustee when the shares were originally acquired?
Answer
Yes
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) indicates that you make a capital gain or loss if and only if a capital gain tax event happens to a CGT asset in which you have ownership interest.
It is considered that a beneficiary is absolutely entitled to a CGT asset as against the trustee if the beneficiary is absolutely entitled in equity to the asset and therefore has a vested, indefeasible and absolute interest in the asset, and able to direct how that asset shall be dealt with.
In this case, the date the assets had a declaration of trust made over them is the date on which the trustee acquired the assets. As the beneficiaries are absolutely entitled to the assets, they are the beneficial owner and acquired their interest at that time. Therefore, the acquisition date and cost of the beneficiaries is that of the trustee when the shares were acquired.
This ruling applies for the following periods:
Year ending 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The trustee purchased a number of shares in trust for the beneficiaries when they were children.
The shares were held on account of the beneficiaries.
The trustee and beneficiaries have signed a statement of understanding confirming:-
● that each beneficiary is entitled to the exclusion of the other beneficiaries of a specific number of share.
● that on the eventual sale of these shares, capital gains tax will be calculated with respect to the cost base applicable to the original acquisition by the Trustee.
No shares have been sold.
All dividends from these shareholdings have been recorded in the tax returns of the beneficiaries on an equal basis.
The beneficiaries are now adults and now wish to register these shares in their own names.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 106-50