Private ruling: Capital gains tax
Published: March 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Family Trust acquire the shares under subsection 109-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) when the transfer takes place? | A1: No, the Family Trust acquired the shares when they were initially purchased.

Relevant facts and circumstances: The trustee for the Family Trust is the company. The company was incorporated to exclusively act as trustee for the Family Trust. The company does not have a TFN or Australian business number (ABN) and has never lodged a tax return. The Family Trust is used for investment purposes. The trust deed for the Family Trust states that the company is the trustee. The primary beneficiaries of the Family Trust are individuals A, B, C and D. The appointers of the trust are individuals A and B. Individual A received monies from the deceased estate of a relative and the Family Trust used these funds to purchase shares. A large number of investments and listed shares owned by the Family Trust are broker sponsored. Since establishment of the Family trust, the broker has undergone mergers and acquisitions. The records held by the broker have either been misplaced or were completed incorrectly. The broker has investments listed under the names of the company with no reference to the Family Trust. However, the broker currently has the Family Trust's tax file number (TFN) against these investments. The share registry for each holding also shows the Family Trust's TFN. Any capital gains or investment income derived from investments has always been declared in the Family Trust's tax return. The Family Trust is intending to transfer the shares to a new sponsor in the correct name of the company as trustee for the Family Trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 109-5(1)

Reasons for decision: Summary: According to subsection 109-5(1) of the ITAA 1997, you acquire a CGT asset when you become its owner. You acquire an asset, as a result of CGT event A1, when the disposal contract is entered into or, if none, when the entity stops being the asset's owner. 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. Application to your circumstances In this case, the shares were purchased using funds provided by the appointer and beneficiary of the Family Trust. An error was made by the broker sponsor and the investments were listed under the name of the company. However, the Family Trust's TFN is recorded against these investments on the share registry. Further, any capital gains or investment income derived from investments has always been declared in the Family Trust's tax return. We accept that the company was holding the shares on trust for the Family Trust and that the Family Trust held beneficial ownership. The Family Trust is intending to transfer the shares to a new sponsor in the correct name of the company as trustee for the Family Trust. There will be no change to the beneficial owner of the shares when they are transferred to the new broker sponsor. Therefore, the Family Trust will not be taken to have acquired the shares when this transfer takes place. The Family Trust instead acquired beneficial ownership of the shares when they were initially purchased.