Edited version of private advice

Authorisation Number: 1052019392373

Date of advice: 9 August 2022

Ruling

Subject: CGT - disposal of property

Question

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

Answer

The disposal of the Property by the Statutory Trustee will not result in a capital gain

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A and Person B jointly held a property (the Property).

Due to a dispute between Person A and Person B, Person A applied to the relevant court for orders

Person C is a legal practitioner practising under the firm name XXXX.

Person C is an Australian resident for tax purposes.

Earlier this year, the relevant court appointed Person C as Statutory Trustee of the Property, pursuant to section XX of the relevant legislative act,

Legal title to the Property was transferred to Person C in their capacity as statutory trustee.

A valuation on the Property was not obtained, however, an appraisal from a real estate agent valued the Property at $XXX,000 to $XXX,000.

The property was sold at auction several months ago for $XXX,000. Settlement occurred several weeks later.

There is an outstanding mortgage.

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 that capital gains tax (CGT) event A1 happens if you dispose of a CGT asset.

You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law: subsection 104-10(2) of the ITAA 1997.

A capital gain will be made as a result of CGT event A1 happening if the capital proceeds from the event are more than the asset's cost base.

The effect of a court order appointing a Statutory Trustee of the Property is that the Property vests in them. The effect of the court order is that the Property is effectively disposed of from the joint owners to the Statutory trustee.

CGT event E1 did not happen when the trust was created over the Property 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. CGT event E1 does not happen when court orders are made.

As you undertook an obligation as Statutory 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 Property will be identical to your cost of acquiring it, there will be no capital gain.