Private ruling: Income Tax - Capital Gains Tax - CGT Events
Date of advice: 7 March 2016
Published: April 2016
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: The scheme has commenced

Ruling: Q1: Did a CGT Event happen when the Securities were mistakenly transferred to the Trustees of the Fixed Unit Trust by the Executor of the Estate? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased passed away about 30 months ago. Probate was granted within six months to the Executor. The will provided a specific bequest of Securities to be divided equally between the beneficiaries who are minors. Acting on advice, a trust deed was executed to establish a Fixed Unit Trust. The trustees of the Fixed Unit Trust are the beneficiary's parents with the unitholders being the beneficiaries. A portion of Securities were transferred based on the advice and a misreading of the will. The will provides for the Securities to be given to the beneficiaries equally and does not make provision for the Securities to be given to the trustees of the Fixed Unit Trust to which the beneficiaries are unitholders. The beneficiaries were minors and not capable of and did not direct or consent to the mistaken transfer. Administration of the estate has not yet been completed. The beneficiaries will become absolutely entitled to the Securities once administration of the estate is completed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 104-60

Reasons for decision: Summary: Based on the information you have provided, we accept that the mistaken transfer of Securities to the Trustees of the Fixed Unit Trust did not result in a change of beneficial ownership. | Detailed Reasoning - Detailed reasoning: Legal ownership v beneficial ownership Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, occurs when your ownership interest in a CGT asset is transferred to another entity. If the other entity is a trust, CGT event E2 may also happen. When considering the disposal of your interest in a CGT asset, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. It is possible for legal ownership to differ from beneficial ownership. However, the CGT provisions do not apply to the legal owner of an asset if the legal owner held it on trust for another person and that other person was absolutely entitled to that asset as against the trustee. Instead, the CGT provisions apply to the absolutely entitled beneficiary. As a consequence, the transfer of the CGT asset from the other person to the legal owner on trust for the other person as the absolutely entitled beneficiary is not a transfer of ownership for CGT purposes and no capital gain or capital loss will result. This is because the CGT provisions consider the beneficiary to be the asset's owner, not the legal owner. | Detailed Reasoning - Application to your situation: The Securities were mistakenly transferred from the Estate by the Executor to the Fixed Unit Trust. Relying on informal advice, a Fixed Unit Trust was set up with the beneficiaries as the unitholders. The Securities were transferred to the Fixed Unit Trust based on the informal advice and a misinterpretation of the will. The Fixed Unit Trust has not obtained good title to the Securities as a result of the mistaken transfer and so holds them on bare trust for the Estate who stands as the absolutely entitled beneficiary in respect of them. Consequently, the Estate was the owner of the Securities before the transfer and is considered to still be their owner for CGT purposes after the transfer. Therefore, as there was no change in ownership for CGT purposes when the Securities were transferred to the Fixed Unit Trust, no CGT event occurred.