Ruling period: 1 July 2010 to 30 June 2011

Ruling: Question and Answer | Is the trustee of the trust liable for any capital gains tax on the distribution of funds from the trust? | No. | Are the beneficiaries of the trust liable for any capital gains tax on the receipt of distributed funds from the trust? | Yes.

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. Before 20 September 1985 A purchased a property. Upon the death of your relative B inherited the property. In xx B transferred the property to you as trustee of the property for a nominal value. In xx a Declaration of Trust was created declaring you, as trustee, to hold the property in trust for the four beneficiaries until the youngest beneficiary turns XX years of age. Upon the youngest beneficiary attaining the age of XX years you, the trustee, when required by the beneficiaries, will transfer the property to the beneficiaries or act as trustee at the beneficiaries' direction. None of the beneficiaries are under legal disability. In xx the property was sold and the proceeds held in a trust account for distribution to the beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1936 Div 6 | Income Tax Assessment Act 1997 104-10 | Income Tax Assessment Act 1997 106-50 | Income Tax Assessment Act 1997 108-5 Reason for Decision | A capital gain or a capital loss may be made if a CGT event happens to a CGT asset. Under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) a Capital Gains Tax (CGT) asset is defined as any kind or property, or a legal or equitable right that is not property. A right to receive income or capital from a trust is a CGT asset. The disposal of an ownership interest in property is the disposal of a CGT asset. Under section 104-10 of the ITAA 1997 a CGT event A1 will occur on the disposal of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs. | Assessing trust income | Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) provides the principal taxing provisions of income of trusts. | As the income of the trust is derived for the benefit of the beneficiaries, it is generally the beneficiary who is entitled to that income and will therefore be assessed on their share. | Trust income is taxed either to the beneficiary or trustee as follows; | The beneficiary is assessable if the beneficiary is presently entitled to income of the trust, is not under a legal disability and is a resident at the end of the income year, | The trustee is assessable on behalf of a beneficiary who is presently entitled to income of the trust but is either under a legal disability or is not a resident at the end of the income year, and | The trustee is assessable on net income of the trust to which no beneficiary is presently entitled. | Application to your circumstances | Under the declaration of trust you declared to hold the property in trust for the beneficiaries, as tenants in common in equal shares until the youngest of the beneficiaries attains the age of XX years. | The beneficiaries are now all over XX years of age and are not under any legal disability. | Therefore; any capital gain or loss that was made from the disposal of the property would belong to the beneficiaries.

Reasons for decision: Summary: A capital gain or a capital loss may be made if a CGT event happens to a CGT asset. Under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) a Capital Gains Tax (CGT) asset is defined as any kind or property, or a legal or equitable right that is not property. A right to receive income or capital from a trust is a CGT asset. The disposal of an ownership interest in property is the disposal of a CGT asset. Under section 104-10 of the ITAA 1997 a CGT event A1 will occur on the disposal of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs. | Detailed Reasoning - Assessing trust income: Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) provides the principal taxing provisions of income of trusts. As the income of the trust is derived for the benefit of the beneficiaries, it is generally the beneficiary who is entitled to that income and will therefore be assessed on their share. Trust income is taxed either to the beneficiary or trustee as follows; The beneficiary is assessable if the beneficiary is presently entitled to income of the trust, is not under a legal disability and is a resident at the end of the income year, The trustee is assessable on behalf of a beneficiary who is presently entitled to income of the trust but is either under a legal disability or is not a resident at the end of the income year, and The trustee is assessable on net income of the trust to which no beneficiary is presently entitled. | Detailed Reasoning - Application to your circumstances: Under the declaration of trust you declared to hold the property in trust for the beneficiaries, as tenants in common in equal shares until the youngest of the beneficiaries attains the age of XX years. The beneficiaries are now all over XX years of age and are not under any legal disability. Therefore; any capital gain or loss that was made from the disposal of the property would belong to the beneficiaries.

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