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Edited version of private advice
Authorisation Number: 1051645934257
Date of advice: 31 March 2020
Ruling
Subject: Capital gains tax
Questions and answers
- Will a CGT event E7 occur when, as trustee, you transfer the Property] from the Trust to your personal name as sole named beneficiary?
Answer: Yes.
- Will you, as the trustee, be assessed on any capital gain or loss resulting from the transfer of the Property of the Trust to the beneficiary?
Answer: Yes.
- Will you, as the beneficiary, be assessed on any capital gain or loss resulting from the transfer of the Property from the Trust to you?
Answer: No
This ruling applies for the following period:
Income year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You live in the Property. The Property is currently owned by the Trust.
The Property was purchased for investment purposes by the Trust with your former spouse and yourself as trustees and named beneficiaries. The trust deed includes a list of classes of eligible beneficiaries.
Soon after this your marriage broke down. As part of the separation agreement, a deed of variation changed the name of the Trust. The altered deed removed your former spouse as a trustee and named beneficiary. You remained the only trustee and sole named beneficiary. The trust deed retained several classes of eligible beneficiaries.
At this time you moved into the property and considered it your main residence. You did not formalise the new arrangement by transferring the Property from the Trust to your personal ownership. The reason for this is that the breakdown of your marriage had a devastating impact on you at the time and as a consequence you did not transfer the Property. You are now able to get your financial affairs an order. Hence you would now like to formalise the transfer of the Property from the Trust to your personal ownership.
You will transfer the property from your Trust to yourself by 30 June 20XX.
You believe in your case the CGT event for transfer from the Trust to your personal ownership should be the moment you stopped using the Property for income earning purposes and it became your place of residence.
Relevant dates:
· The Property was purchased for the Trust. The property was already tenanted at the time of purchase.
· The tenant left the Property.
· Your former spouse and you started separation procedures.
· You moved into the Property treating it as your main residence and no longer a rental property.
· The deed of variation altered:
o The name of the trust.
o Removed your former spouse as a named trustee.
o Removed your former spouse as a named beneficiary.
You have supplied copies of the following documents in support of your application:
· The purchase contract.
· The discretionary trust deed.
· The deed of variation.
· The separation agreement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-85
Income Tax Assessment Act 1997 subsection 104-85(6)
Reasons for decision
CGT event E7 happens if the trustee of a trust disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital (section 104-85 of the ITAA 1997). The timing of the event is when the disposal occurs.
When CGT event E7 occurs, there is the potential for both the trustee and the beneficiary to make a capital gain or capital loss, unless they meet one of the exemptions (section 104-85 of the ITAA 1997).
In your case, when as the beneficiary you direct the trustee to transfer the legal title of the Property to you, a CGT event E7 will be triggered.
At the time of disposal (transfer to the beneficiary), the trustee will be assessed on any capital gain or capital loss made.
Any capital gain or capital loss made at this time by the beneficiary will be disregarded as you meet the test of having acquired the CGT asset that is your interest in the trust for no expenditure and thus exempt under subsection 104-85(6) of the ITAA 1997.
Additional information
As the trust is the rulee and as it is the trust that has the E7 event, there will not be an E7 event for you as the beneficiary as you did not pay for your interest in the trust.