Private ruling: State & Territory Body, Exempt Income and Capital Gains
Published: November 2011
Ruling period: Income year ended 30 June 2011 | Income year ended 30 June 2012 | Income year ended 30 June 2013
Date scheme commenced: 20 April 1988

Ruling: Q1: Is Entity A assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) on the income generated from a business operation under the current trading structure? | A1: No | Q2: Is Entity A assessable under section 6-5 of the ITAA 1997 on the income generated from a business operation under the proposed trading structure? | A2: No | Q3: Will Entity A be assessable on any gain made on the transfer of assets under the proposed trading structure? | A3: No

Relevant facts and circumstances: Company A is currently owned by Entity A and Entity B and acts as a trustee of assets involved in the business operations. Entity A and Entity B are joint lessees of land on which the business operates. Company A acts as trustee of Trust A under delegation from Entity A and Entity B. A proposed change to the trading structure for the business operations has been considered. The assets will be transferred from Company A as trustee to the new trading structure and the lease will be assigned from Entity A and Entity B. The new trading structure is a partnership consisting of 100% owned company subsidiaries of Entity A and Entity B and either 100% owned trusts or company subsidiaries of the new investors. The new investors are taxable entities.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-12 | Income Tax Assessment Act 1997 Section 6-5 and | Income Tax Assessment Act 1936 Division 1AB

Reasons for decision: Summary: Entity A is entitled to the benefit of a general exemption from income tax under section 50-25 of the ITAA 1997. Hence, Entity A will not be assessable under section 6-5 of the ITAA 1997 on the taxable income from the business operations under the current trading structure. Entity A is entitled to the benefit of a general exemption from income tax under section 50-25 of the ITAA 1997. Hence, Entity A will not be assessable under section 6-5 of the ITAA 1997 on the taxable income from the business operations under the proposed trading structure. Any capital gains or revenue gain triggered by a transfer of assets to the new trading structure will not be assessable to Entity A due to their tax-exempt status regardless of whether Entity A directly made the gain or the gain was distributed from the Trust A. The termination, surrender or assignment of the lease, for the same reason, will not crystallise a tax liability for Entity A. The lease (a capital asset) being terminated, surrendered or assigned to the new trading structure is being used by Entity A to generate income that is exempt because of Entity A's exempt status. Therefore, any gain made as a result of its termination, surrender or assignment will be specifically exempted by section 118-12 of the ITAA 1997.

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