ATO Interpretative Decision
ATO ID 2010/102
Income Tax
Capital gains tax and foreign residents: meaning of 'happening to' a CGT asset in section 855-40 of the ITAA 1997FOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is CGT event I2 in section 104-170 of the Income Tax Assessment Act 1997 (ITAA 1997) 'a CGT event happening to a CGT asset' for the purposes of paragraph 855-40(2)(b) of the ITAA 1997?
Decision
Yes. CGT event I2 in section 104-170 of the ITAA 1997 is 'a CGT event happening to a CGT asset' for the purposes of paragraph 855-40(2)(b) of the ITAA 1997.
Facts
The taxpayer, a foreign resident funds manager owns 100% of the units of Australian Trust which is a resident trust for CGT purposes. The trustee of the Australian Trust owns assets that are not taxable Australian property.
Australian Trust will cease to be a resident trust for CGT purposes.
The change of residency of Australian Trust will trigger CGT Event I2 under section 104-170 of the ITAA 1997.
Reasons for Decision
Subsection 855-40(2) of the ITAA 1997 disregards a capital gain made by a foreign resident in respect of that person's interest in a fixed trust if the capital gain relates to an asset that is not taxable Australian property of the fixed trust at the time of the CGT event. One of the eligibility tests for the exemption is contained in paragraph 855-40(2)(b) of ITAA 1997 which provides that:
- (b)
- the gain is attributable to a *CGT event happening to a *CGT asset of a trust (the
CGT event trust
) that is:
- (i)
- the fixed trust;...
- * Denotes a term defined in section 995-1 of the ITAA 1997
To satisfy that eligibility test in respect of the facts in this case, CGT event I2 must give rise to a gain that is attributable to 'a CGT event happening to a CGT asset' of Australian Trust (emphasis added ).
While CGT event I2 happens where Australian Trust stops being a resident for CGT purposes (subsection 104-170(1) of the ITAA 1997), a CGT event I2 capital gain or loss is made only to extent that the trust owns CGT assets (subsection 104-170(3) of the ITAA 1997). Subsection 104-170(3) requires the trustee to work out the capital gain or loss for each CGT asset owned. This means that a capital gain made as a result of CGT event I2 relates to a CGT asset.
It follows that a capital gain made as a result of CGT event I2 is a gain that is attributable to 'a *CGT event happening to a *CGT asset' for the purposes of paragraph 855-40(2)(b) of the ITAA 1997.
Date of decision: 23 April 2010Year of income: Year ended 30 June 2009
Legislative References:
Income Tax Assessment Act 1997
section 104-170
subsection 104-170(1)
subsection 104-170(3)
section 855-40
subsection 855-40(2)
paragraph 855-40(2)(b)
section 995-1
ATO ID 2005/177
Keywords
CGT events I1-I2 - Australian residency ends
CGT exemptions
Entities & taxpayer groups
Entity changes
Fixed trusts
Foreign income
International tax
Ownership, interests, control & rights
Relevant CGT asset
Trust restructuring
Trusts
ISSN: 1445 - 2782