Private ruling: Part IVA
Published: May 2013
Ruling period: 1 July 2012 to 30 June 2014

Ruling: Question and answer | Will the provision of Part IVA of the Income Tax Assessment Act 1936 apply to the whole or part of the Distribution? | 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. Individual 1, individual 2 and the Trust are all residents of Australia for Australian taxation purposes. Individual 1 and 2 are currently married, but are separated. The Orders are proposed as part of the property settlement between individual 1and individual 2 arising out of their separation. The Orders are, in essence, settled between the parties pending the outcome of this ruling request. The Orders will be binding on all the parties to the proceedings. The Trust The individual 1 and individual 2 are the only directors and equal shareholders of Company 1. Company 1 is the trustee for the Trust. The Trust was established by deed and individual 2 is the Appointor and Guardian of the Trust. The children and grandchildren of the parties are the specified beneficiaries of the Trust. Individual 1 and individual 2 are included in the class of general beneficiaries. Company 2 Company 2 is a corporate beneficiary of the Trust. Individual 1 and Individual 2 are the only directors and equal shareholders of company 2. Company 2 holds an unpaid present entitlement with the Trust. Property Trust The Property Trust is a unit trust established by deed. The Trust holds a percentage of the Units in the Property Trust. The remaining units are held by: (i) Individual 2's relative; and (ii) Trust Z, as a silent investor. The trustee of Trust Z is Company Z. This company is now controlled by the executor of the estate of Z, individual 3. The trustee of the Property Trust is Company 3. Individual 2 and Individual 2's relative are the only directors of Company 3. There are three shares in company 3. Individual 2, Individual 2's relative and individual 3 hold one share each. The parties agree that, for the purposes of these Orders only, the Trust's percentage of unit holdings in the Property Trust is valued for an approximate sum. The parties intend that one half of the units held by the Trust in the Property Trust will vest in individual 1 pursuant to these Orders. Individual 1 intends to become a silent investor in the Property Trust in a similar manner to Trust Z, and will be bound by the Property Trust Deed. These Orders will act in conjunction with the Property Trust Deed. In the event that any inconsistency arises between a provision of these Orders and that of the Property Trust Deed, these Orders shall prevail. Property Partnership The commercial property, Property 1, is held by the Trust and Trust Z as tenants in common in equal shares. The Trust and Trust Z manage the lease of Property 1 through a partnership called the Property Partnership. The parties intend that one half of the Trust's interest in the Property Partnership will vest in individual 1, and that individual 1 will receive a one quarter share in the profit made by the Partnership going forward. Pursuant to paragraph 8 of the Orders, the Trust will transfer the Distribution to individual 1. This will occur within fourteen (14) days of the publication of the Orders. Paragraph 8 of the orders state the following; Vesting from the Trust 8. Within 14 days of compliance by the individual 1 with paragraph 4 of these Orders the parties do all acts and sign all documents necessary to vest in individual 1: (a) One half of the units held by the Trust in the Property Trust; (b) One half of the interest held by the Trust in the Property Partnership including but not limited to a one quarter interest in Property 1: (c) All furniture, chattels, antiques, artwork and jewellery held by the Trust; and (d) Property 2. Paragraph 4 of the orders state the following; Company 2 4. Within 14 days of publication of these Orders individual 1 do all acts and sign all documents necessary to: (a) Transfer to individual 2 all of their right, title, estate or interest in their shareholding in Company 2; and (b) Resign from any and all positions and/or offices they hold in Company 2 including their position as a director and secretary. The Trust currently has unpaid present entitlements owed to Company 2. The unpaid present entitlement of Company 2 will remain unpaid before the earlier of the due date for lodgement and the date of lodgement of the income tax return of the Trust for the year in which the Distribution is transferred to individual 1. The Trust also currently has unpaid present entitlements owed to individual 1. Pursuant to the Orders, within fourteen (14) days of individual 2's compliance with the Orders, individual 1 will do all acts and sign all documents necessary to: transfer to individual 2 their interest in the shareholding in Company 1; (b) resign from any and all positions and or offices they hold in Company 1; and (c) renounce any future interest they hold in the Trust (other than their existing unpaid present entitlement as set out in the Orders). The purpose of the Distribution is to ensure that individual 2 receives a percentage of the total available assets and individual 1 receives a percentage of the total available assets. If the proposed Distribution proceeds, the Trust will account for the transfer of the various assets comprising the Distribution as either: (a) a disposal for nil consideration; or (b) a transfer by way of a distribution from the Trust. The "marriage break-down" CGT rollover in Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) would apply to the Distribution from the Trust to individual 1. Accordingly, any capital gain made by the Trust on the Distribution to individual 1 will be disregarded.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 109C(3) | Income Tax Assessment Act 1936 subsection 109XA(1) | Income Tax Assessment Act 1936 subsection 109XA(7) | Income Tax Assessment Act 1936 Section 177A | Income Tax Assessment Act 1936 subsection 177A(1) | Income Tax Assessment Act 1936 subsection 177A(3) | Income Tax Assessment Act 1936 subsection 177A(5) | Income Tax Assessment Act 1936 Section 177C | Income Tax Assessment Act 1936 subsection 177C(1) | Income Tax Assessment Act 1936 Section 177D | Income Tax Assessment Act 1936 Section 177F

Reasons for decision: Summary: Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance provision that can apply in certain circumstances. Part IVA gives the Commissioner the power to cancel a 'tax benefit' (or part of a 'tax benefit') that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. In broad terms, Part IVA will apply where the following requirements are satisfied: · there is a scheme (see section 177A) · a taxpayer has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme (see section 177C) · the dominant purpose of a person who entered into or carried out the scheme, or any part of the scheme, was to enable the relevant taxpayer to obtain a tax benefit in connection with the scheme, or to enable the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme (paragraph 177D(b)). The application of Part IVA depends on a careful weighing of all the relevant facts and surrounding circumstances of each case. In your case, what you are proposing is a 'scheme' capable of attracting the operation of Part IVA. However, when considered in conjunction with the factors in paragraph 177D(b) of the ITAA 1936, all these factors either point against the application of Part IVA or are neutral. Therefore, Part IVA will not apply to this arrangement.