Edited version of private advice

Authorisation Number: 1052004602839

Date of advice: 12 July 2022

Ruling

Subject: CGT - disposal

Question

Will the disposal of the property by the Statutory Trustee result in a capital gain?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

XX XXXX 20XX

Relevant facts and circumstances

XXXX is a legal practitioner practicing under the firm name XXXX and is an Australian Resident for taxation purposes.

On XX XXXX 20XX the Supreme Court of Queensland appointed XXXX as Statutory Trustee pursuant to section 38 of the Property Law Act 1974 (Qld) of a property located at XXXX.

XXXX obtained a valuation on the property on their appointment as Statutory Trustee on XX XXXX 20XX. The valuation was for $XX.

XXXX, as Statutory Trustee, disposed of the property at auction for $XX. The auction was held on XX XXXX 20XX and the contract settled on XX XXXX 20XX.

Upon settlement of the sale, the sale proceeds shall be paid or held, as the case may be in the following manner:

(a)  Firstly, in payment of all necessary selling costs including agent's commissions, legal costs, marketing and advertising costs and all other necessary costs incurred in the sale;

(b)  Secondly, in discharge of any liabilities secured against the Land by registered mortgages;

(c)   Thirdly, in payment of the Trustee's costs and expenses incurred in effecting the sale and when the sale is settled; and

(d)  Fourthly, in payment of the costs of the application to the applicant's solicitors or to the applicant for reimbursement of monies expended on legal costs payable under the Order

(e)  Fifthly, to the applicant and the respondent in proportion to their holding of the Land prior to the appointment of the Trustee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-55

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Section 110-55

Reasons for decision

Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides CGT event A1 happens if you dispose of a CGT asset.

ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1?, states that the making of the court order effects a disposal of the property from the owners to the trustee for sale by operation of the law. Therefore, CGT event A1 happens for the owner.

ATO ID 2009/129 also explains that CGT event E1 under section 104-55 of the ITAA 1997 does not occur when a court order effects a disposal of the property from the owner to the trustee. This is because section 104-55 of the ITAA 1997 states that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of a court order).

Consequently, a CGT event did not happen to you when the court orders were made.

However, you will trigger CGT event A1 when the Property was sold. Under the general cost base and reduced cost base rules covered under subsections 110-25(2) and 110-55(2) of the ITAA 1997, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of the property given (or required to be given) in respect of acquiring it.

As you undertook an obligation as trustee to pay the net proceeds of the sale to the applicant and respondents of the property, your payment of the net proceeds to them will be your cost of acquisition ('the money you are required to pay') for the purposes of subsections 110-25(2) and 110-55(2) of the ITAA 1997.

As the proceeds from the sale of the properties will be identical to your costs of acquiring them, there will be no capital gain.