Private ruling: Special disability trust
Published: June 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Can the main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) be applied to any capital gain arising from the disposal of the property, thus allowing the capital gain to be disregarded? | A1: No


Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-218 | Income Tax Assessment Act 1997 paragraph 118-110(1)(a)

Reasons for decision: Summary: Ordinarily a trust cannot apply the main residence exemption as paragraph 118-110(1)(a) of the ITAA 1997 requires that the entity making the gain must be an individual. There are exceptions however. Taxation Determination (TD) 58 states that where a beneficiary is absolutely entitled as against the trustee to the dwelling and it is the main residence of that beneficiary the main residence exemption would be available. This position stems from section 106-50 that states that any actions done by the trustee are considered to be done by the beneficiary when the beneficiary is absolutely entitled to the CGT asset in question. The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. This derives from the rule in Saunders v. Vautier (1841) BEAV 115 applied in the context of the CGT provisions. For the purposes of determining absolute entitlement any legal disability suffered by the beneficiary is ignored. In other words, if the only thing that prevents a beneficiary from being absolutely entitled under the rule in Saunders v. Vautier is their legal disability, then they will be absolutely entitled for the purposes of the CGT provisions. The interest a beneficiary has in the trust asset must be vested in possession and indefeasible. A trustee would only be obliged to satisfy such a demand from a beneficiary with such an interest. The beneficiary is not absolutely entitled.

Relevant facts: A property was transferred into the Trust and then later sold.