ATO ID 2003/798: Capital gains tax: CGT discount - discount capital gain distributed by public trading trust to unit holder
Date of decision: 22 August 2003
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
Will the taxpayer, an individual unit holder receiving a distribution from a public trading trust, that is attributable to a discount capital gain made by the trust, apply Subdivsion 115-C of the Income Tax Assessment Act 1997 (ITAA 1997) to the distribution?

Decision
No. The taxpayer will not apply Subdivision 115-C of the ITAA 1997 to the amount of the distribution attributable to the trust capital gain.

Facts
The unit trust is a public trading trust under section 102R of the Income Tax Assessment Act 1936 (ITAA 1936). The trust made a capital gain from the sale of shares that it acquired after 21 September 1999. The trust had owned the shares for more than 12 months at the time that it disposed of them. The trust has not made a choice under section 703-50 of the ITAA 1997 to form a consolidated group. The trust was entitled to the 50% CGT discount for the discount capital gain in terms of subparagraph 115-100(b)(ii) of the ITAA 1997. The trustee distributed the capital gain to the unit holders in proportion to their unit holdings.

Reasons for decision
Summary: Subdivision 115-C of the ITAA 1997 sets out the rules for dealing with the net income of a trust that has a capital gain. The rules treat parts of the net income attributable to capital gains included in the trust's net capital gain as capital gains made by beneficiaries specifically entitled to those gains or otherwise having a share of those gains. Subsection 115-210(1) of the ITAA 1997 states that this Subdivision applies where a net capital gain is taken into account in calculating the trust's net income for the year. This subsection adopts the definition of 'net income' contained at subsection 95(1) of the ITAA 1936. The net income of a public trading trust is determined in accordance with the definition in section 102M of the ITAA 1936. As the public trading trust's 'net income' does not fall under that definition at subsection 95(1) of the ITAA 1936, the taxpayer cannot apply Subdivision 115-C of the ITAA 1997 to the amount of the distribution attributable to the trust capital gain.

Legislative references: Income Tax Assessment Act 1936 section 95(1) section 102M section 102R
Related ATO interpretative decisions: ATO ID 2003/652 | ATO ID 2003/652
Subject references: Capital gains tax CGT 50% individual discount CGT discount CGT trust distribution Consolidated group Consolidation Net capital gain Net income of a trust Public trading trusts Unit trust distributions Unitholders