Private ruling: Capital gains tax
Published: April 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will a capital gains tax (CGT) event occur if the shares are transferred to the family trust? | A1: No.

Relevant facts and circumstances: You acquired a number of options in a company. You exercised the options and acquired fully paid ordinary shares in the company. At the time of these transactions, you intended for the options and subsequent shares to be purchased in the name of your family trust. The trust was established in 200X and you are the trustee. A loan was taken out in the name of the family trust to fund the share purchase. You wish to correct the error made and transfer the shares from yourself to the trust. No dividends have been paid in relation to the shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 120-20

Reasons for decision: Summary: Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a CGT event happens to a CGT asset. CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). | Detailed Reasoning - Beneficial ownership: A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. A legal owner is the individual who has their name on the legal documents associated with the capital gains tax (CGT) asset, an example would be the title deed for a property. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets. In some cases, an entity may hold a legal ownership interest in property for another individual in trust. | Detailed Reasoning - Application to your circumstances: In this case, the family trust of which you are the trustee took out a loan with a financial institution to purchase shares in a company. An error occurred and the options and subsequent shares were purchased in your name rather than that of the trust. However, we accept that you were holding the shares on trust for the family trust and that the family trust held beneficial ownership. You intend to transfer the shares to the family trust. There will be no change to the beneficial owner of the shares were the transfer takes place. Therefore, no CGT event will occur at this point in time.