Private ruling: Capital gains tax and statutory trustee for sale
Date of advice: 14 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Did a capital gains tax event involving you occur when the court order was made? | A1: No | Q2: When the property was sold, will the cost base for acquiring the property be equal to the net proceeds paid to the beneficiaries? | A2: Yes

Relevant facts and circumstances: You were appointed as trustees of the statutory trust created by Court orders on DDMMYY. You were appointed statutory trustees for the purpose of selling a property (the property). Prior to the court order, the property as held by the Executors of an Estate. Following the court order the beneficiaries of the Estate have become the beneficiaries of the statutory trust. The property was sold with the contract for sale signed on XX February 20XX. Settlement occurred on XX April 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 – Subsection 104 - 10(1) | Income Tax Assessment Act 1997 – Section 104 - 55 | Income Tax Assessment Act 1997 – Subsection 110-25(2) | Income Tax Assessment Act 1997 – Subsection 110-55(2) | Income Tax Assessment Act 1936 – Section 161

Reasons for decision: Summary: The Court order issued on DDMMYY caused a change of ownership in circumstances where two capital gains tax (CGT) events need to be considered: ● CGT event A1 about changes of ownership, and ● CGT event E1 about creating a trust over an asset Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides CGT event A1 happens if you dispose of a CGT asset. ATO ID 2009/129 states that the making of the court order effects a disposal of the property from the joint owners to the trustees for sale by operation of the law. Therefore, CGT event A1 happens for each joint owner. ATO ID 2009/129 also explains that CGT event E1 under section 104-55 of the ITAA 1997 does not occur when a court order effects a disposal of the property from the co-owners to the trustees. This is because section 104-55 of the ITAA 1997 states that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of a court order). Consequently, a CGT event did not happen to you when the court orders were made. However, CGT event A1 triggered when the property sold on XX February 20XX. Under the general cost base and reduced cost base rules covered under subsections 110-25(2) and 110-55(2) of the ITAA 1997, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of the property given (or required to be given) in respect of acquiring it. Due to the nature of this arrangement it is reasonable for the Commissioner to consider that the market value at the time of acquiring the property is equal to the net proceeds that will be paid to the beneficiaries under your obligation as trustee. As the proceeds from the sale of the properties will be identical to your costs of acquiring them, there will be no capital gain. As you, as trustees, will derive no income from the sale of the properties there will be no obligation for you to lodge a trust tax return under section 161 of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the sale of the properties. Table L, of the legislative instrument that sets out lodgement obligations each income year, states a trust must have derived income for a lodgement obligation to arise. However, if you as trustees have derived other income in relation to the properties, such as rental income, then there will be an obligation upon you to lodge a trust tax return under section 161 of the ITAA 1936 in respect to that other income.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.