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Edited version of private advice
Authorisation Number: 1051579351666
Date of advice: 12 September 2019
Ruling
Subject: Capital gains tax
Question 1
Will the Commissioner allow the trustee an extension of time pursuant to paragraph 115-230(5)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) until 31 October 20xx to make a choice to be assessed on the capital gain derived from the sale of trust assets?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
1. Mr Pink passed away in Country A in February 19xx. The spouse, Mrs Pink, passed away in Australia, after Mr Pink, in February 19xx.
2. Clause XX of Mr Pink's Will provides that:
a. the annual income of the trust fund be paid to the spouse during their lifetime
b. after the death of the spouse, the capital and income of the trust fund be held on trust in equal shares for their (three) children, one of which being Mrs Purple
c. with regards to the share in the capital of the trust fund to which Mrs Purple (Mrs Purple's trust fund) is entitled:
i. to be held on trust such that the annual income is paid to Mrs Purple upon her lifetime, and
ii. upon Mrs Purple's death, the capital and income thereof to be held on trust for her children.
3. The assets of Mrs Purple's trust fund are shares in listed companies, cash and other securities, which are all held in Australia.
4. The trustee of Mrs Purple's trust fund wishes to distribute the trust's assets to the beneficiaries by conversion to, and distribution in, cash. To this end, the trustee sold the relevant assets in the year ended 30 June 20xx.
5. On February 20xx, the trustee of Mrs Purple's trust fund applied to the Commissioner for a private binding ruling (PBR) in relation to, among other things, whether the trustee was entitled to make a choice to be assessed on the capital gains derived from the sale of trust assets pursuant to section 115-230 of the Income Tax Assessment Act 1997 (ITAA 1997)[1].
6. On August 20xx, the Commissioner issued a PBR advising the trustee of Mrs Purple's fund that it satisfied the required conditions in section 115-230 and was thereby eligible to make the choice in the provision as the delay in the Commissioner issuing the PBR was due to circumstances outside of the control of the trustee of Mrs Purple's trust fund.
7. The trustee of Mrs Purple's trust fund did not make the choice to be assessed on the capital gains derived from the sale of the trust assets on or before August 20xx.
Relevant legislative provisions
Section 115-230 of the Income Tax Assessment Act 1997
Reasons for decision
Question 1
Will the Commissioner allow the trustee an extension of time pursuant to paragraph 115-230(5)(b) until 31 October 20xx to make a choice to be assessed on the capital gain derived from the sale of trust assets?
Choice for resident trustee to be deemed as specifically entitled
8. Broadly, section 115-230 allows a trustee of an Australian resident trust to choose to be assessed on a capital gain of the trust where no trust property representing the capital gain has been paid or applied for a beneficiary of the trust.
9. If the trustee is eligible to make a choice to be assessed on the capital gain, subsection 115-230(5) provides that the trustee must make the choice within either:
a. two months or the last day of the income year, or
b. a later day as permitted by the Commissioner.
Application to your circumstances
10. On February 20xx, the trustee of Mrs Purple's trust fund applied to the Commissioner for a PBR in relation to, among other things, whether it was eligible to make the choice to be assessed on the capital gain associated with the sale of trust fund assets in the year ended 30 June 20xx. Consequently, if the trustee was eligible to make the choice, according to subsection 115-230(5), the trustee had until August 20xx to make the choice unless a later date was permitted by the Commissioner.
11. On August 20xx, the Commissioner issued a PBR to the trustee of Mrs Purple's trust fund confirming that it was eligible to make the choice in section 115-230 to be assessed on the capital gain associated with the sale of trust assets. As the PBR issued only a day prior to the expiration of the period in which the trustee was required to make the choice in paragraph 115-230(5)(a), it was not able to make the choice prior to August 20xx.
12. The Commissioner accepts that the delay in making the choice in section 115-230 was outside the control of the trustee. Consequently, the Commissioner will allow trustee of Mrs Purple's trust fund an extension of time until 31 October 20xx to make the choice to be assessed on the capital gains associated with the sale of assets in the year ended 30 June 20xx.
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