ATO ID 2010/72: Capital gains tax: trustee ceasing to hold an asset on trust and commencing to hold it in its own capacity - CGT event A1
Date of decision: 2 March 2010
Year of income: Year ended 30 June 2010
Business line: Private Groups and High Wealth Individuals

Issue
Does CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 ( ITAA 1997) happen if a company ceases to hold a CGT asset in its capacity as trustee of a trust and commences to hold the asset in its own capacity?

Decision
Yes. CGT event A1 in section 104-10 of the ITAA 1997 happens because there is a change in ownership of the asset from one entity (the company acting in its capacity as trustee) to another entity (the company acting in its own capacity).

Facts
The trustee of a unit trust holds a CGT asset on trust. The trustee is an Australian resident and is a company limited by shares. As part of a restructure, the trustee ceases to hold the asset on trust and commences to hold the asset in its own capacity as a company. The unit holders under the restructure exchange their units in the trust for shares in the company. The trust is subsequently wound up.

Reasons for decision
Summary: CGT event A1 in section 104-10 of the ITAA 1997 happens if there is a disposal of a CGT asset. Under subsection 104-10(2) of the ITAA 1997, a disposal of a CGT asset occurs if there is a change in ownership of the asset from one entity to another entity. The term 'entity' is defined in section 960-100 of the ITAA 1997 and includes a body corporate - paragraph 960-100(1)(b) of the ITAA 1997. Where a legal person, such as a body corporate, has a number of different capacities in which the person does things, subsection 960-100(3) of the ITAA 1997 provides that the person is taken to be a different entity in each of those capacities. It follows from this that a body corporate acting in its capacity as a trustee of a trust is a different and distinct entity from the same body corporate acting in its own capacity. Because of this, the requirements for CGT event A1 to happen are satisfied as there has been a change in ownership of the asset from one entity (the company acting in its capacity as trustee) to another entity (the company acting in its own capacity). This is the case notwithstanding that there has been no change in the legal ownership of the asset.

Legislative references: Income Tax Assessment Act 1997 section 104-10 subsection 104-10(2) Subdivision 124-N section 960-100 paragraph 960-100(1)(b) subsection 960-100(3)
Related ATO interpretative decisions: ATO ID 2002/808
Subject references: Capital gains tax CGT events CGT event A1 - disposal of a CGT asset CGT roll-over relief CGT same asset roll-over