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Edited version of private advice
Authorisation Number: 1052239966562
Date of advice: 9 April 2024
Ruling
Subject: CGT - trusts
Question
Does CGT Event I2 in section 104-170 happen on the appointment of a foreign resident company as co-trustee for Trust A?
Answer
No.
This ruling applies for the following period:
Years ended 30 June 20XX to 30 June 20YY
The scheme commenced on:
1 July 20xx
Relevant facts and circumstances
1. Company A is the trustee for Trust A.
2. Trust A is an Australian discretionary trust.
3. Company A was incorporated in Australia.
4. Company A has always acted as trustee for Trust A.
Proposed appointment of Co-trustee
5. The Appointor of Trust A proposes to appoint a foreign resident Company (Company B) as a co-trustee of Trust A.
6. Company A and Company B will fulfill the roles of co-trustee of Trust A.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-170
Reasons for decision
Summary
CGT Event I2 in section 104-170 will not happen on the appointment of a New Trustee as co trustee of Trust A.
Detailed reasoning
1. CGT event I2 happens if a trust stops being a resident trust for CGT purposes: section 104-170.
2. If CGT Event I2 is triggered, subsection 104-170(3) provides that the trustee needs to work out if it has made a capital gain or a capital loss for each CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event except one that is taxable Australian property covered by paragraphs 104-170(3)(a) and (b).
3. Section 995-1(1) contains the following definitions:
resident trust for CGT purposes: a trust is a resident trust for CGT purposes for an income year if, at any time during the income year:
(a) for a trust that is not a unit trust, a trustee is an Australian resident or the central management and control of the trust is in Australia; or
(b) ...
Australian resident means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936.
4. Section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines which companies are residents of Australia as follows:
Resident or resident of Australia means:
(a) ...
(b) a company which is incorporated in Australia or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.
5. Company A was incorporated in Australia, therefore, it satisfies the definition in paragraph 6(1)(b) of the ITAA 1936 and it is a resident of Australia.
6. As per paragraph 995-1(1)(a), only one trustee is required to be an Australian resident for the trust to be considered as an Australian resident trust.
7. Company A will remain as trustee of the Trust after the appointment of the new co-trustee and, as a result, the Trust will remain an Australian resident trust.
8. Therefore, CGT event I2 will not occur on the appointment of Company B as a co-trustee of Trust A.