ATO ID 2003/341: Capital Gains Tax: trust to company rollover - CGT assets retained by the trustee to pay existing or expected debts not used for this purpose
Date of decision: 28 April 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Is the trust to company rollover under Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) available if some of the CGT assets, retained by the trustee to pay the existing or expected debts of the trust, are not ultimately used for this purpose?

Decision
Yes. The trust to company rollover under Subdivision 124-N of the ITAA 1997 will be available for the CGT assets that were disposed of to the company.

Facts
The trustee disposed of nearly all of the CGT assets of the unit trust to the company under the trust restructure rollover in Subdivision 124-N. The trustee retained CGT assets in the trust to pay existing or expected debts of the trust, having made a reasonable determination of the CGT assets needed to be retained for this purpose. When all the debts were settled there were CGT assets remaining in the trust.

Reasons for decision
Summary: Section 124-860 of the ITAA 1997 sets out the requirements to be satisfied by the transferor so that rollover relief is available for the disposal of the trust's CGT assets. All of the CGT assets owned by the transferor, the trust, must be disposed of to the transferee, the company, during the trust restructuring period. However, any CGT assets retained by the transferor to pay existing or expected debts of the transferor can be ignored (subsection 124-860(1) of the ITAA 1997). As a result, the trust to company rollover is not denied if some CGT assets, retained to pay existing or expected debts of the transferor, are owned by the trustee after the settlement of the debts. The rollover allowed for the CGT assets already disposed of to the company is not affected by this outcome. As a general rule the trust must cease to exist within 6 months, after it first disposed of a CGT asset to the company under the trust restructure otherwise the effect of the roll-over will be reversed (see the note to section 124-850 of the ITAA 1997 and CGT event J4, section 104-195 of the ITAA 1997).

Legislative references: Income Tax Assessment Act 1997 section 104-195 Subdivision 124-N section 124-850 section 124-860 subsection 124-860(1)
Related ATO interpretative decisions: ATO ID 2002/955 | ATO ID 2003/340
Subject references: Capital gains Capital gains tax CGT assets Unit trust restructuring