ATO ID 2008/2: Discount capital gains
Date of decision: 3 December 2007
Year of income: Year ended 30 June 2008
Business line: Public Groups and International

Issue
Can an overseas pension fund constituted as a Stichting under Dutch legal concepts make a discount capital gain under section 115-10 of the Income Tax Assessment Act 1997 (ITAA 1997) when it disposes of taxable Australian property?

Decision
Yes, the pension fund can make a discount capital gain under section 115-10 of the ITAA 1997 when it disposes of taxable Australian property.

Facts
An overseas pension fund is constituted as a Stichting that is a legal person under Dutch legal concepts. Under the bye-laws the purpose of the fund is to protect employees, former employees and their legal heirs from the consequences of old age, disablement and death in accordance with the pension regulations. The property of the pension fund consists of contributions by affiliated employers, investments and fund earnings. The pension fund is administered by a Board of trustees. The Board is authorised to undertake all actions relating to management and disposition within the framework of the objectives of the fund. The pension fund intends to dispose of taxable Australian property that is currently held as a long term investment.

Reasons for decision
Summary: CGT event A1 will happen upon the disposal of the taxable Australian property and may result in a capital gain. Section 115-10 of the ITAA 1997 provides that to be a discount capital gain the capital gain must be made by an, individual, a complying superannuation fund, a trust or a life insurance company in relation to a CGT event in respect of particular CGT assets. 'Trust' is not defined in the Income Tax Assessment Act 1936 or ITAA 1997. French J in Harmer & Ors v. Federal Commissioner of Taxation (1989) 20 ATR 1461; 89 ATC 5180 stated that a trust 'is notably a definition of a relationship by reference to obligations'. He went on to state that the four essential elements of a trust are: Having regard to the Bye-laws of the pension fund (the Stichting), all four elements are present so as to give rise to a trust relationship between the Stichting and those individuals entitled to benefits from the pension fund for the purposes of section 115-10 of the ITAA 1997. The Stichting has ownership and possession of the trust property and is the trustee. The trust property consists of the contributions made to the fund, investments and fund earnings. The beneficiaries are the employees, former employees and their legal heirs. The Bye-laws of the Stichting impose on it a personal obligation to deal with the trust property for the benefit of the beneficiaries. Having regard to the relationship between the Stichting, contributors, beneficiaries and potential beneficiaries and the express intention that the Stichting hold the property not exclusively for itself, but subject to an equitable obligation to deal with the property for the benefit of the beneficiaries the relationship constitutes a trust for the purposes of section 115-10 of the ITAA 1997. Because it is a trust for the purposes of section 115-10 of the ITAA 1997 this pension fund may make a discount capital gain.

Legislative references: Income Tax Assessment Act 1997 section 115-10
Case references: Harmer v. Federal Commissioner of Taxation (1989) 20 ATR 1461 (1989) 89 ATC 5180
Related ATO interpretative decisions: ATO ID 2007/42 | ATO ID 2003/48
Subject references: Capital gains tax CGT discount Non resident trusts Trusts Netherlands