Edited version of private advice

Authorisation Number: 1052240600859

Date of advice: 10 April 2024

Ruling

Subject: CGT - maximum net asset value

Question 1

Will the trust's property be excluded from the maximum net asset value (MNAV) test under subparagraph 152-20(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will the border land owned by the individual be excluded from the MNAV test under subparagraph 152-20(2)(b)(i) of the ITAA 1997?

Answer

Yes.

Question 3

Will the individual's personal savings account be excluded from the MNAV test?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The trust is a discretionary trust.

The trust carries on a business.

The trustee of the trust is a company.

The individual is the sole shareholder and director of the company.

In 20XX, the trust acquired the property.

In 20XX, the individual acquired an additional X acres of land that borders the property (the border land).

Both the property and the border land have been used solely for personal use and enjoyment since their acquisition.

Neither the property nor the border land has been used as a main residence since their acquisition.

The individual also has a personal savings account.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 108-5(2)

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 subparagraph 152-20(2)(b)(i)

Income Tax Assessment Act 1997 subsection 328-130(1)

Income Tax Assessment Act 1997 subsection 328-130(2)

Reasons for decision

Maximum net asset value test

Section 152-15 of the ITAA 1997 outlines the requirements to satisfy the maximum net asset value (MNAV) test. It provides that the trust satisfies the MNAV test if, just before the CGT event, the sum of the following amounts does not exceed $6 million:

(a)  The net value of the CGT assets of the trust;

(b)  The net value of the CGT assets of any entities connected with the trust;

(c)  The net value of the CGT assets of any affiliates of the trust or entities connected with the trust's affiliates (not counting any assets already counted under paragraph (b)).

Additionally, subparagraph 152-20(2)(b)(i) of the ITAA 1997 states that an asset of the trust is disregarded for the purposes of the MNAV test if the asset is being used solely for the trust, or their affiliate's, personal use, and enjoyment (except a dwelling, or an ownership interest in a dwelling, that is your main residence).

In terms of the requirement for the asset to be used solely for the personal use and enjoyment of the trust or their affiliate, the asset must have been so used over its entire ownership period.

The "solely" requirement also means that any income producing use of the asset, no matter how trivial, will disqualify it from being excluded from the MNAV test.

Meaning of affiliate

Under subsection 328-130(1) of the ITAA 1997, an individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company.

Subsection 328-130(2) of the ITAA 1997 also provides that an individual is not your affiliate merely because of the nature of the business relationship shared by the individuals.

Trusts, partnerships, and superannuation funds cannot be an individual's affiliate. However, a trust, partnership or superannuation fund may have an affiliate who is an individual or company.

What is a CGT Asset

A CGT asset is defined in subsection 108-5(2) of the ITAA 1997 to include the following:

(a)  part of, or an interest in, property or a legal or equitable right that is not property;

(b)  goodwill or an interest in it; and

(c)  an interest in an asset of a partnership.

Examples of CGT assets are:

•         land and buildings;

•         shares in a company and units in a unit trust;

•         options;

•         debts owed to you;

•         a right to enforce a contractual obligation;

•         foreign currency.

Question 1

In this case, the trust owns the property which has been used by the individual solely for personal use and enjoyment since its acquisition. Furthermore, the property has not been used as anyone's main residence, or to produce any income, since its acquisition.

As the individual is the sole shareholder and director of the company that is the trustee of the trust, it can be established that the individual would act in concert with the trust. Thus, the individual is an affiliate of the trust.

Therefore, as the property has been only used for an affiliate of the trust's personal use and enjoyment, it will be disregarded for the purposes of the MNAV test under subparagraph 152-20(2)(b)(i) of the ITAA 1997.

Question 2

In this case, the individual owns the border land, which has been used by the individual solely for personal use and enjoyment since its acquisition. Furthermore, the border land has not been used as anyone's main residence, or to produce any income, since its acquisition.

Therefore, as the border land has been only used for the owner's use and enjoyment, it will be disregarded for the purposes of the MNAV test under subparagraph 152-20(2)(b)(i) of the ITAA 1997.

Question 3

In this case, the individual has a personal savings account. A personal savings account will not be classified as a CGT asset under subsection 108-5(2) of the ITAA 1997, as it is neither:

(a)  part of, or an interest in, property or a legal or equitable right that is not a property;

(b)  goodwill or an interest in it; or

(c)  an interest in an asset of a partnership.

Therefore, as a personal savings account will not be taken to be a CGT asset, then it will not be included in the MNAV test under section 152-15 of the ITAA 1997.