Private ruling: Capital gains tax
Date of advice: 28 August 2019
Published: October 2019
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2017

Ruling: Q1: Did CGT event A1 happen to you when the Court made orders appointing you as Trustees for Sale of the Property? | A1: No | Q2: When the Property was sold, is your cost base equal to the net proceeds paid to the beneficiaries, being the consideration received on the sale less costs associated with the protections, maintenance and management of the Property? | A2: Yes | Q3: When the Property was sold were the capital proceeds equal to the net proceeds paid to the beneficiaries? | A3: Yes | Q4: Are you required to lodge a trust tax return in your capacity of Trustees for Sale if you did not receive any other income from the Property? | A4: 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. You were jointly appointed as Trustees for Sale over the Property. The orders were made in proceedings commenced by X against Y after frequent and repeated requests by X to Y to sell the Property were ignored. By virtue of the court orders and the relevant state legislation, the Property vested to you in your capacity as Trustees for Sale (subject to the mortgage held over the Property) and held on statutory trust for sale. To give effect to the court orders, you became the registered proprietors (in your capacity as Trustees for Sale) of the Property. You exchanged contracts for sale of the Property to a purchaser. Completion of the sale occurred and the full consideration was received by you, subject to adjustments for council and water rates and other adjustments associated with the conveyance for the Property. On completion of the sale, the mortgage over the Property was discharged. You incurred costs in your capacity as Trustees for Sale from the time of your appointment and continuing in relation to the finalisation of the administration of the statutory trust. These costs and expenses include valuation fees, repairs and maintenance expenses, costs associated with obtaining possession of the Property from the tenant, insurance, registration fees and your fees as Trustees. You have not received any income from the Property. The balance of the sale proceeds is now payable to X and Y as beneficiaries of the statutory trusts created pursuant to the Conveyancing Act. The sale of the Property is not subject to GST.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 104-55 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Section 110-55 | Income Tax Assessment Act 1936 Section 161

Reasons for decision: Summary: The court orders caused a change of ownership in circumstances where two CGT events need to be considered: · CGT event A1 about changes of ownership, and · CGT event E1 about creating a trust over an asset Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides CGT event A1 happens if you dispose of a CGT asset. ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1?, states that the making of the court order effects a disposal of the property from the joint owners to the trustees for sale by operation of the law. Therefore, CGT event A1 happens for each joint owner. ATO ID 2009/129 also explains that CGT event E1 under section 104-55 of the ITAA 1997 does not occur when a court order effects a disposal of the property from the co-owners to the trustees. This is because section 104-55 of the ITAA 1997 states that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of a court order). Consequently, a CGT event did not happen to you when the court orders were made. However, you will trigger CGT event A1 when the Property was sold. Under the general cost base and reduced cost base rules covered under subsections 110-25(2) and 110-55(2) of the ITAA 1997, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of the property given (or required to be given) in respect of acquiring it. As you undertook an obligation as trustees to pay the net proceeds of the sale to the former owners of the properties, your payment of the net proceeds to them will be your cost of acquisition ('the money you are required to pay') for the purposes of subsections 110-25(2) and 110-55(2) of the ITAA 1997. As the proceeds from the sale of the properties will be identical to your costs of acquiring them, there will be no capital gain. As you, as trustees, will derive no income from the sale of the properties there will be no obligation for you to lodge a trust tax return under section 161 of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the sale of the properties. Table L, of the legislative instrument that sets out lodgement obligations each income year, states a trust must have derived income for a lodgement obligation to arise. However, if you as trustees derive other income in relation to the Property, such as rental income, then there will be an obligation on you to lodge a trust tax return under section 161 of the ITAA 1936 in respect to that other income.