Private ruling: Issuing units
Date of advice: 21 January 2019
Published: May 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the issue of the additional units by entity A trigger a capital gains tax (CGT) event? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Division 104

Reasons for decision: Summary: Capital gains tax Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. Division 104 of the ITAA 1997 sets out all the CGT events for which you can make a capital gain or loss. As outlined in subsection 104-35(1) of the ITAA 1997, CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity. However, paragraph 104-35(5)(d) of the ITAA 1997 states that CGT event D1 does not happen if the trustee of a unit trust issues units in the trust. Therefore the issue of the additional units by the trust does not constitute the happening of CGT event D1 for the trust. No other CGT event as outlined in Division 104 of the ITAA 1997 occurred when the additional trust units were issued.

Relevant facts: Entity A is a fixed unit trust. | Entity B is the sole unit holder of entity A with one ordinary (paid up) unit issued at $1. | Entity A operates a business. | The current value of the one ordinary unit issued to entity B is $XXX,XXX. | Entity B proposes to sell an interest in entity A to an unrelated third party. | In order to do so, entity A has converted its unitholding from one ordinary unit to several ordinary units by issuing additional ordinary units to entity B for no consideration (pursuant to the relevant clause of entity A’s trust deed). | The additional ordinary units were issued recently. There was no change to the total capital in entity A. | The original unit has not been cancelled or redeemed.