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Edited version of private advice
Authorisation Number: 1051962976793
Date of advice: 21 March 2022
Ruling
Subject: CGT - trust
Question
Will a capital gains tax (CGT) event occur when the Trustee transfers the legal title of the property to the beneficiaries of the Trust?
Answer
Yes.
This private ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Trust was established in 20XX. The Trustee is a company.
The Trust purchased a residential property for investment purposes in late 20XX.
The Trustee intends to transfer the property to the beneficiaries as joint tenants.
The beneficiaries will not pay any consideration to the trust for the transfer of the asset.
The Trust will vest once the property is transferred to the beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 100-2
Income Tax Assessment Act 1997 section 102-5
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 104-85
Income Tax Assessment Act 1997 sub section 104-85(3)
Income Tax Assessment Act 1997 sub section 104-85(5)
Income Tax Assessment Act 1997 paragraph 104-85(6)(a)
Reasons for decision
Section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997) includes in assessable income any 'net capital gain' made by the taxpayer in an income year. Section 100-20 of the ITAA 1997 states that a taxpayer makes a capital gain (or loss) only if a 'CGT event' happens.
Division 104 of the ITAA 1997 sets out all the CGT events for which a taxpayer can make a capital gain or loss. If more than one event applies you use the one that is most specific to your circumstances.
Under section 104-10 of the ITAA 1997, CGT event A1 happens, in relation to a taxpayer, if the taxpayer disposes of a 'CGT asset'.
Under section 104-85 of the ITAA 1997 CGT 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.
The trustee will make a capital gain if the market value of the asset is greater than the cost base and a capital loss if the market value of the asset is less than the reduced cost base.
Application to your circumstances
The Trustee intends to transfer the residential property to the beneficiaries. The transfer will be a change of ownership and CGT event E7 will occur at the time of transfer.
The trustee will make a capital gain if the market value of the asset is greater than the cost base and a capital loss if the market value of the asset is less than the reduced cost base.