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Edited version of private advice
Authorisation Number: 1051645921912
Date of advice: 17 March 2020
Ruling
Subject: Capital gains tax - cost base - assessable income
Question 1
Are you liable for any capital gains made from the transfer of the 'Company C' share to you from the Trust?
Answer
No
Section 104-85 of the Income Tax Assessment Act 1997 (ITAA 1997) states a Capital Gains Taxation event E7 happens when the trustee of a trust disposes of a CGT asset of the trust to the beneficiaries, in the satisfaction of the beneficiaries' interest, or part of it, in the trust capital.
Paragraph 104-85(6)(a) of the ITAA 1997 states that a capital gain (or loss) the beneficiary makes is disregarded if the beneficiary acquired the CGT asset for no expenditure.
Question 2
Are you liable for any capital gain made on the transfer of the 'Capital Gains Asset' to you from 'the Trust'?
Answer
No - refer to answer 1 for explanation.
Question 3
Does any Capital Gains Tax (CGT) liability arise on the transfer of the 'Cash Settlement' paid to you as settlement of your marriage breakdown?
Answer
No
No capital gains tax (CGT) liability arises for the ending of spouses' rights that directly relate to the breakdown of their marriage or relationship, including if they receive cash as part of a breakdown settlement, provided the spouses separate and there is no reasonable likelihood of cohabitation being resumed. Further information about 'Cash Settlements' can be found by searching on 'QC 52263' on ato.gov.au.
Question 4
Is the first element of the cost base for the 'Capital Gains Assets' equal to its market value at the date of transfer to you?
Answer
Yes
You substitute the market value for the first element of the cost base or reduced cost base if:
· you did not incur expenditure to acquire the asset
· some or all of the expenditure you incurred cannot be valued, or
· you did not deal at arm's length with the previous owner in acquiring the asset.
Further information about 'Market value substitution' can be found by searching on 'QC 52175' on ato.gov.au.
Question 5
Is the first element of the cost base for the 'Company C' share equal to its market value at the date of transfer to you?
Answer
Yes- refer to answer 4 for explanation.
Question 6
Is your 'Income stream' from the Country B assessable in Australia?
Answer
No
Double Tax Agreements operates to avoid the double taxation of income received by residents of Australia and the Country B.
The Double Tax Agreement states the 'Income Stream' is exempt from tax in Australia.
Consequently, your 'Income Stream' is not included in your assessable income in Australia.
This ruling applies for the following period:
Year ended 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
You have a relationship with Person A (Person A).
You are a Citizen of Country B and a resident of Australia for Tax purposes.
You receive an income stream (Income Stream) from Country B.
You are a beneficiary of a Trust (the Trust).
You are employed by Company C.
You and Person A were separated on XXXX.
You and Person A have agreed to a financial settlement (Financial Agreement) but your application for a consent order from the Family Court of Australia has been denied.
You are not eligible for a rollover under section 126-5 or 126-15 of the Income Tax Assessment Act 1997 (ITAA 1997).
The Financial Agreement consists of:
5.2.1 Pay you a lump sum (Cash Settlement)
11.2. Person A will do all things necessary to procure the transfer of the one share held in Company C from the Trust to You;
11.3. You will disclaim your interest in the Trust and release the trustee from all claims, actions, proceedings, accounts, costs, damages, entitlements, demands and other amounts whatsoever that they may be entitled to as against the trustee and in respect of the administration of the Trust;
11.4. Person A will procure the transfer of 'Capital Gains Tax Assets' from the Trust to You.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1).
Income tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 104-85
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Section 112-20
Income Tax Assessment Act 1997 Section 118-75
Income Tax Assessment Act 1997 Subdivision 126-A
Income Tax Assessment Act 1997 Section 126-5
Income Tax Assessment Act 1997 Section 126-15