Private ruling: Capital gains tax-shares-absolute entitlement
Date of advice: 6 July 2017
Published: October 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Did the transfer of the legal title of the shares from you to a family member trigger capital gains tax (CGT) event A1 under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 section 106-50

Reasons for decision: Summary: On the basis of the information provided the Commissioner accepts that a trust arose when you acquired the additional shares for a family member under the SPP. The terms of the trust included that you would hold a number of additional shares and transfer the ownership of these shares upon a family member's request under an off-market transfer. Is a family member absolutely entitled to a portion of the additional shares you held as trustee? A beneficiary of a trust who is absolutely entitled to a CGT asset of the trust as against the trustee is treated as the owner of the asset for CGT purposes (rather than the trustee). Further, any act done in relation to the asset by the trustee is taken to be done by the beneficiary (Refer to section 106-50 of the ITAA 1997). Draft Taxation Ruling TR 2004/D25 sets out the Commissioner’s views as to the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a trust asset for CGT purposes. It provides that the core principle underpinning the concept of absolute entitlement is the ability of a beneficiary, who has a vested and indefeasible interest in an entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. Your circumstances come within the terms of this Ruling. The nature of the trust in this case meant that you were required to deal with a number of additional shares only at the direction of a family member. In these circumstances, the family member is considered to be absolutely entitled to the shares. Did the transfer of the shares to a family member trigger a CGT event? Because a family member is taken for CGT purposes (by virtue of section 106-50) to be the owner of the shares that you hold as trustee, there will be no change of ownership when the shares are transferred to a family member. Accordingly, CGT event A1 will not happen when the shares were transferred to a family member.

Relevant facts: A family member purchased shares and gifted these to you. | Under the terms of the initial share purchase, the purchaser was granted certain rights to purchase additional shares under a Share Purchase Plan (SPP). | You and a family member entered into an arrangement to purchase additional shares under a SPP. Under the terms of the arrangement you were to take up your rights under a SPP on the basis a family member paid for the additional shares. You were to hold a number of additional shares and transfer them back to a family member at their request as part of an off-market transfer. The remaining additional shares were left to you as a gift. | You transferred the additional shares you held to a family member as part of an off-market transfer. | A family member paid for the additional shares that were purchased under the SPP.