Private ruling: Should the capital gain on the sale of property be declared
Date of advice: 30 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the corporate trustee for the trust liable to include in the trust's assessable income a capital gain on the sale of the property under section 102-5 of the Income Tax Assessment Act (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The trust was established with a company appointed as trustee of the trust. The company purchased the property as an undisclosed trustee of the trust. Consequently only the company was recorded on the Certificate of Title. The purchaser on the Contract for Sale for the property was the company. The mortgage documents show the company it its capacity as trustee took out the mortgage for the purchase of the property. Insurance documents indicate the company in its capacity as trustee was the policy holder of insurance for the property. The property has always been included as a non-current asset in the financial statements of the trust. Rental income received from the property and associated expenses have always been declared as income/deductions in the trust's tax returns. The company has never traded in its own name nor has it held any assets. The property was sold. A capital gain was made on the sale.

Relevant legislative provisions: Section 102-5 of the Income Tax Assessment Act 1997 | Section 104-10 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Section 104-10 of the ITAA 1997 states CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. If the taxpayer did not have ownership of the asset, then CGT event A1 cannot occur to that taxpayer. For example, in Saunders v. DFC of T [ 2010] WASC 261, the taxpayer successfully argued that, by a declaration of trust over certain property, all the beneficial interest in the property was held by the trust and not him. In this case, it is clear from all the information provided that although the company was shown on the title deed of the property, it was holding the asset as trustee for the trust. Therefore, in relation to section 104-10 of the ITAA 1997 the trust is considered the 'owner'. Consequently any capital gain made on the sale will be made by the trust and not by the company.