Private ruling: Capital Gains Tax
Date of advice: 28 June 2016
Published: August 2016
Ruling period: Year ending 30 June 20yy
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the cost base of each of the properties acquired by the trustees determined under section 104-55(4) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Is the cost base of each of the properties acquired by the trustees determined with reference to section 112-20 (1) (a) (the market value substitution rule) of the ITAA 1997? | A2: Yes | Q3: Are the market valuations obtained for each separate property suitable for the purposes of determining a market value? | A3: Yes

Relevant facts and circumstances: In 20xx, a Court appointed joint and several receivers ("the Receivers") over a number of properties. As directed by the Court Order, the trustee obtained written market valuations for each of the properties subject to the Court Order by a registered valuer. The appointment of the Receivers has resulted in the legal ownership of the properties being transferred to the Receivers, and the Receivers therefore holding these assets on trust for the creditors of the defendants. The creditors are the beneficiaries of the newly created trust. The Receivers are the Trustees of a discretionary trust ("The Taxpayer"). The Taxpayer held the abovementioned properties and as per the Court Order, and each of these properties has subsequently been sold pursuant to the Court Order. An auction was held for Property 1 in 20xx. The property was sold for the amount of the valuation. Settlement for this property took place in 20yy. Property 2 went to auction in 20xx where it was sold for amount above the valuation. The sale of this property was settled in 20yy. An offer for Property 3 was active at the time the Receivers were appointed. This offer was accepted in 20xx.The settlement of the property occurred in 20xx.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-55(1) | Income Tax Assessment Act 1997 subsection 110-25(2) | Income Tax Assessment Act 1997 subsection 112-20(1) | Income Tax Assessment Act 1997 subsection 116-20(1)

Reasons for decision: Summary: Subsection 112-20(1) of the ITAA 1997 explains that if you did not incur any expenditure to acquire an asset from another entity, the first element of the cost base and reduced cost base of the asset will be its market value. In this case, the making of the court order effects a disposal of the property from the co-owners to the trustees for sale by operation of law and CGT event A1 happened. The receivers are considered to have acquired the interest in the properties for their market value as it did not incur any expenditure to acquire the assets. In working out the market value of your property, Taxation Determination TD 10 lists what are acceptable valuation methods for CGT purposes. These are located in the Market valuation for tax purposes Where the market value of a property needs to be determined, you can choose to: • obtain a detailed valuation from a qualified valuer; or • compute your own valuation based on reasonably objective and supportable data. You have received market valuations from qualified valuers for each of the properties. The valuations were prepared using the Direct Comparison method, which is an appropriate methodologies. These valuations are deemed to be suitable for the purposes of determining a market value.

Reasons for decision: ATO Interpretive Decision ATO ID 2009/129 provides that capital gains tax (CGT) event A1 occurs when property vests in a statutory trustee. | CGT event A1 happens if you dispose of a CGT asset: subsection 104-10(1) of the ITAA 1997. | 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: subsection 104-10(2) of the ITAA 1997. | If the disposal is not made under a contract, then CGT event A1 happens when the change of ownership occurs: subsection 104-10(3) of the ITAA 1997. | The effect of the court order is to vest the property in the trustees. | On the making of the court order the whole of the co-owners' interests in the property vested in the receivers appointed as trustees for the sale of the property; and the co-owners' interests were converted into personalty, that is, into a right to compel due performance of the trust and to share in the proceeds of sale in accordance with their interests. | In these circumstances it is considered that the making of the court order effects a disposal of the property from the co-owners to the trustees for sale by operation of law. Therefore, CGT event A1 happens. | A capital gain will be made as a result of CGT event A1 happening if the capital proceeds from the event are more than the asset's cost base. The capital proceeds for the event are the total of the money you receive or are entitled to receive in respect of the event happening and the market value of any other property you receive or are entitled to receive in respect of the event happening (refer to subsection 116-20(1) of the ITAA 1997). | CGT event E1 did not happen when the trust was created over the property. That event happens if you create a trust over a CGT asset by declaration or settlement: subsection 104-55(1) of the ITAA 1997. It is considered that this event has no application where the trust is created by order of a court, rather than by the actions of the owners of the property. That is, given the court's role, it is impossible to cast the co-owners in the role of 'you' for the purpose of CGT event E1.