Edited version of private advice

Authorisation Number: 1052002415589

Date of advice: 5 July 2022

Ruling

Subject: Distribution of property sale proceeds

Question 1

To the extent to which the distribution of the net proceeds from the sale of the property is attributable to so much of the discount capital gain as is included in the net capital gain of the trust, will it be a non-assessable part for the purposes of section 104-70 of the Income Tax Assessment Act 1997?

Answer

No.

Question 2

To the extent to which the distribution of the net proceeds from the sale of the property is attributable to so much of the discount capital gain as is excluded from the net capital gain of the trust because of step 3 of the method statement in subsection 102-5(1) of the Income Tax Assessment Act 1997, will it be excluded from the non-assessable part referred to in section 104-70 by operation of subsection 104-71(4) Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.    The Trust is an Australian resident unit trust.

2.    The Trust is not an AMIT.

3.    The trustee of the Trust is Trustee Pty Ltd (the Trustee).

4.    The Trust was the registered owner of property.

5.    Settlement has completed for sale of that property.

6.    The Trust will make a discount capital gain from the sale.

7.    On 6 May 2022, the unitholders of the Trust made the following resolution by special resolution:

That the Trustee:

                         i.     shall distribute so much of the proceeds from the sale of the property which remain after the trustee has discharged any related borrowings and has provided for the direct and indirect costs of disposing of the property;

                        ii.    is authorised to distribute the proceeds of sale: first, out of the accounting profit recognised by the trustee with respect to the sale; and second, with respect to any balance thereof, out of contributed capital;

Assumption

The CGT discount attributed to the sale of the Property will not be included in the assessable income of a unitholder.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection102-5(1)

Income Tax Assessment Act 1997 Section104-70

Income Tax Assessment Act 1997 Section104-71

Income Tax Assessment Act 1997 Paragraph104-71(1)(c)

Income Tax Assessment Act 1997 Subsection104-71(4)

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997.

Question 1

Detailed reasoning

8.    The non-assessable part in section 104-70 refers to the part that is not included in the assessable income of the entity receiving the payment.

9.    The amount of the distribution made by the trustee that is attributable to the amount of the discount capital gain that is included in its net capital gain will not be included in the non-assessable part because it will either be:

•         Assessed to the unitholder and therefore not falling within the scope of non-assessable part as provided by section 104-70; or

•         Assessed to the trustee and disregarded in accordance with paragraph 104-71(1)(c).

Question 2

Detailed reasoning

10.  Subsection 104-71(4) provides:

(4) The amount of the non-assessable part referred to in section 104-70 for an entity shown in the table is adjusted to exclude the amount or amounts applicable to the entity under the table.

11.  Table item 1 of Subsection 104-71(4) provides that for any entity, the following amount is excluded:

So much of the amount of a * discount capital gain excluded from the * net capital gain of the trust making the payment because of step 3 of the method statement in subsection 102-5(1) and that is reflected in the payment to the entity

12.  As a result of the distribution made by the trustee in accordance with the special resolution, part of the payment received by the unitholder will be attributable to an amount excluded from the net capital gain of the Trust because of step 3 of the method statement in subsection 102-5(1).

13.  Section 104-71 disregards this amount for the purposes of section 104-70.