Private ruling: State & Territory Body, Exempt Income and Capital Gains
Published: November 2011
Ruling period: Income year ended 30 June 2011 | Income year ended 30 June 2012 | Income year ended 30 June 2013
Date scheme commenced: 28 April 1988

Ruling: Q1: Is Company A as trustee for the Trust A assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) on the taxable income from operating business under the current trading structure? | A1: No | Q2: Will Company A as trustee of the Trust A be assessable on gain made on the transfer of assets to the proposed trading structure? | A2: No

Relevant facts and circumstances: Company A is currently owned by Entity A and Entity B and acts as a trustee of assets involved in the business operations. Entity A and Entity B are joint lessees of land on which the business operates. Company A acts as trustee of Trust A under delegation from Entity A and Entity B. A proposed change to the trading structure for the business operations has been considered. The assets will be transferred from Company A as trustee to the new trading structure and the lease will be assigned from Entity A and Entity B. The new trading structure is a partnership consisting of 100% owned company subsidiaries of Entity A and Entity B and either 100% owned trusts or company subsidiaries of the new investors. The new investors are taxable entities.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-12 | Income Tax Assessment Act 1997 Section 6-5 and | Income Tax Assessment Act 1936 Division 1AB

Reasons for decision: Summary: The Trust A should be classified as a STB and receive a general tax exemption in accordance with section 24AS of the ITAA 1936 and the trust income of the trustee Company A is exempt in accordance with section 24AM of the ITAA 1936. Any capital gains or revenue items triggered by a transfer of assets by Company A as trustee for the Trust A should not be assessable due to the Trust A's tax-exempt status. Assets used solely to produce exempt income are incapable of producing capital gains in any event in accordance with section 118-12 of the ITAA 1997. Where the income generated from the transfer of assets is distributed to the beneficiaries of the the Trust, this also has the affect of Company A as trustee of the Trust not being assessable.

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