Private ruling: Fixed trusts and capital gains tax
Date of advice: 2 November 2018
Published: January 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the trust a fixed trust for the purposes of section 272-5 of the Income Tax Assessment Act 1936 (ITAA 1936) and subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Can the foreign resident beneficiary and the trustee disregard the capital gain in accordance with section 855-40 of the ITAA 1997 that is made as a result of a CGT event happening to shares listed on the ASX that are not indirect Australian real property interests? | A2: Yes

Relevant facts and circumstances: The assets held in the Trust consisted of shares in companies listed on the ASX. All shares owned by the Trust were acquired post-CGT. One of the beneficiaries is a foreign resident for tax purposes. The shares were transferred to the beneficiaries in the year ended 30 June 20XX. The Trust’s trust deed was provided and its terms form part of the Facts that are the subject of the private ruling.

Relevant legislative provisions: Section 272-5 of ITAA 1936 | Subsection 995-1(1) of ITAA 1997 | Section 104-75 of ITAA 1997 | Section 104-85 of ITAA 1997 | Section 855-40 of ITAA 1997

Reasons for decision: Summary: Section 272-65 of Schedule 2F to the ITAA 1936 provides that a trust is a 'fixed trust' if persons have fixed entitlements to all of the income and capital of the trust. Subsection 995-1(1) of the ITAA 1997 provides that a trust is a fixed trust if entities have fixed entitlements to all of the income and capital of the trust. Having regard to the Trust’s trust deed, the Commissioner is satisfied that the interests of the residual beneficiaries in the income and capital of the Trust are vested and indefeasible and therefore fixed entitlements exist in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936. As such the Trust is a fixed trust in accordance with section 272-65 of Schedule 2F to the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. Section 855-40 provides a CGT exemption for foreign residents making a capital gain in respect of their interest in a fixed trust (including a managed fund). Relevantly, subsection 855-40(2) provides that a capital gain you make in respect of your interest in a fixed trust is disregarded if: ● you are a foreign resident when you make the gain: paragraph 855-40(2)(a); and ● the gain is attributable to a CGT event happening to a CGT asset of a trust (the CGT event trust) that is the fixed trust: subparagraph 855-40(2)(b)(i); and ● the asset is not taxable Australian property for the CGT event trust at the time of the CGT event: subparagraph 855-40(2)(c)(i). In the present case, the relevant conditions in subsection 855-40(2) are satisfied in respect of the interests of the non-resident residuary beneficiary in the Trust. This is because the residuary beneficiary is a non-resident of Australia for tax purposes when the beneficiary makes the capital gain attributable to the CGT event trust that is a fixed trust and the assets held by the Trustee in the Trust are not taxable Australian property for the purposes of Division 855 of the ITAA 1997. Given that the Trust is a fixed trust, the non-resident beneficiary of the Trust can disregard any capital gain made in respect of their interest in the Trust under subsection 855-40(2) of the ITAA 1997. Further, subsection 855-40(3) of the ITAA 1997 provides that a trustee of a trust is not liable to pay tax where the capital gain has been disregarded for the beneficiary under subsection 855-40(2) of the ITAA 1997. Accordingly, the trustee of the Trust is not liable to pay tax with respect to the capital gain disregarded by the non-resident beneficiary of the Trust.