Private ruling: Capital Gains Tax - CGT Events
Date of advice: 7 March 2016
Published: April 2016
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: The scheme has commenced

Ruling: Q1: Will a CGT Event happen when the Securities mistakenly transferred to the Unit Trust Trustees are transferred back to the Estate? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased passed away about 30 months ago. Probate of the will was granted within six months to the Executor. The will provided a specific bequest of Securities to be divided equally between the beneficiaries who are minors. A trust deed was executed to establish a Fixed Unit Trust. The Unit Trust Trustees are the parents of the beneficiaries who are the unitholders of the Fixed Unit Trust. Securities were mistakenly transferred to the Unit Trust Trustees. Administration of the estate has not been completed. The beneficiaries will become absolutely entitled to the Securities once administration of the estate is completed. For the purpose of this ruling, the Unit Trust will transfer the Securities back to the Estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-55 | Income Tax Assessment Act 1997 section 104-60

Reasons for decision: Summary: The Trustee of the Estate is absolutely entitled to the Securities as against the trustees of the Fixed Unit Trust. Therefore, when the Securities are re transferred from the Unit Trust back to the Estate, no capital gains tax event will occur. | Detailed Reasoning - Detailed reasoning: Legal ownership v beneficial ownership Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, occurs when your ownership interest in a CGT asset is transferred to another entity. If the other entity is a trust, CGT event E2 may also happen. When considering the disposal of your interest in a CGT asset, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. It is possible for legal ownership to differ from beneficial ownership. However, the CGT provisions do not apply to the legal owner of an asset if the legal owner held the CGT asset on trust for another person and that other person was absolutely entitled to that asset as against the trustee. Instead, the CGT provisions apply to the absolutely entitled beneficiary. As a consequence, the transfer of the CGT asset from the other person to the legal owner on trust for the other person as the absolutely entitled beneficiary is not a transfer of ownership for CGT purposes and no capital gain or capital loss will result. This is because the CGT provisions consider the beneficiary to be the asset's owner, not the legal owner. | Detailed Reasoning - Application to your situation: The Securities from the Estate were mistakenly transferred to the Trustees of the Fixed Unit Trust. The Fixed Unit Trust has not obtained good title to the Securities as a result of the mistaken transfer and so holds them on bare trust for the Estate who stands as the absolutely entitled beneficially in respect of them. Consequently, the Estate continues to be the owner of the Securities for CGT purposes after their transfer to the Fixed Unit Trust. Therefore, there will be no change to the beneficial ownership when the Securities are transferred back to the Estate and so, no CGT event will occur.