Private ruling: Cost base of statutory trust property.
Published: July 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: A4: No Would a distribution to the registered owners of a share of other income, such as rental income, be, for taxation purposes, income of the trust estate to which the registered owners are presently entitled or, alternatively, to which they are specifically entitled, which will also require you to lodge a tax return? Answer: Yes

Relevant facts and circumstances: Pursuant to a Court Order, you were appointed as statutory trustees of post-CGT investment commercial properties, which you plan to dispose of at market value for the benefit of the former co-owners.

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 1936 Section 254 | Income Tax Assessment Act 1997 Section 161

Reasons for decision: Summary: 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 is about land vested in a statutory trustee for sale. It states 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, for each co-owner. However, ATO ID 2009/129 also provides 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 CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of an court order). The fact that CGT Event E1 does not apply upon your appointment does not mean that a trust has not come into existence. In Dixon v Roy (1991) 5 BPR 11,655, Young J held that trustees for sale appointed under section 66G of the Conveyancing Act 1919 have all the ordinary duties and obligations of trustees [see also Goldberg v Goldberg [2000] NSW SC 399 (Young CJ in Eq)]. Accordingly, you are a trustee for the purposes of the definition of 'trustee' in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 254(1) of the ITAA 1936 provides an agent or trustee is answerable as taxpayer for the doing of all such things as are required to be done by virtue of the ITAA 1936 in respect of income, or any profits or gains of a capital nature, derived by the agent or trustee in his or her representative capacity or derived by the principal by virtue of the agency. It states he or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon. When the CGT asset that comes into the possession of the statutory trust for sale is sold, CGT event A1 happens to the trust. The cost base of the disposed asset under subsection 110-25(2) of the ITAA 1997 is defined as: "the money you paid, or are required to pay, in respect of acquiring it". As you undertook an obligation, as trustee, to pay the net proceeds of sale to the former co-owners, your payment of the net proceeds to the former co-owners will be your cost of the acquisition, i.e., "the money you are required to pay" for the purposes of subsection 110-25(2) of the ITAA 1997. As the proceeds from the sale of the property will be identical to your cost of acquiring it, there will be no capital gain. As you, as trustee, will derive no income from the sale of the relevant property, there will be no obligation upon you to lodge a trust tax return under section 161 of the ITAA 1936 in respect of the sale of the property. Table L, of the legislative instrument that sets out lodgment obligations each income year, states a trust must have derived income for a lodgment obligation to arise. However, if you, as trustee, have derived other income in relation to the properties, such as rental income, then there will be an obligation upon you to lodge a trust tax return under section 161 of the ITAA 1936, in respect to that other income. Further, as the proceeds from the sale of the relevant property will be identical to your cost of acquiring it, there will be no capital gain to which the registered owners will be presently entitled or, alternatively, to which they will be specifically entitled. In short, the payments you make to the former co-owners will be 'remittance of sale proceeds' (rather than amounts to which the former co-owners will be presently entitled).

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Questions and Answers: Can the market value of each of the properties at the time of acquisition by you, the trustee, be used as your (i.e., the trustee's) first element of the cost base of each property? | Will the proceeds from the sale of each property, you are required to pay the former owners, be your (i.e., the trustee's) first element of the cost base of each property? | Due to your capital gain from the sale of the properties being nil, will you, the trustee, be required to lodge a tax return in relation to the capital gain from your sale of the properties? | Would your distribution to the registered owners of a share of the net capital gains income be, for taxation purposes, income of the trust estate to which the registered owners are presently entitled or, alternatively, to which they are specifically entitled?