Private ruling: Capital gains tax - surrender or cancellation of units
Date of advice: 27 May 2016
Published: July 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will you make a capital loss on the surrender or cancellation of the units you hold in the unit trust where the capital proceeds are less than the reduced cost base? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Subsection 102-25(1). | Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 104-25. | Income Tax Assessment Act 1997 Subsection 104-25(1). | Income Tax Assessment Act 1997 Subsection 104-25(3).

Reasons for decision: Summary: Section 102-20 of the ITAA 1997 provides that you make a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the CGT event. For CGT purposes, shares in a company or units in a unit trust are treated in the same way as any other assets. Shares and units acquired on or after 20 September 1985 are a CGT asset. The CGT event which is relevant to your situation is CGT event C2 Cancellation, surrender or similar endings (section 104-25 of the ITAA 1997). | Detailed Reasoning - CGT event C2: CGT event C2 happens if ownership of an intangible CGT asset ends by the asset: (a) being redeemed or cancelled (b) being released, discharged, or satisfied (c) expiring or (d) being abandoned, surrendered or forfeited. You have purchased units in a unit trust. A unit in a unit trust is an intangible CGT asset. It is intended that the unit trust will vest in the near future. Upon the vesting of the trust, the surrender or cancellation of the units will give rise to a CGT event C2. Under subsection 104-25(3) of the ITAA 1997, you will make a capital gain if the capital proceeds from the surrender or cancellation of the units is more than the asset's cost base. You will make a capital loss if those capital proceeds are less than the asset's reduced cost base. The unit holders will not receive any capital proceeds on the surrender or cancellation of the units. Therefore you will make a capital loss under subsection 104-25(3) of the ITAA 1997.

Relevant facts: You purchased units in a unit trust. | The unit trust carried on a business. | The business has been underperforming and is being wound up. | In the near future the unit holders will organise a special resolution to terminate the unit trust in accordance with the trust deed. | There will be no funds or other assets remaining in the trust after the business is wound up. Consequently no distribution will be made to the unit holders on the surrender or cancellation of the units when the trust terminates.