Ruling Compendium TD 2012/11EC
Status: not legally binding







This edited version of the Compendium of Comments is not intended to be relied upon. It provides no protection from primary tax, penalties, interest or sanctions for non-compliance with the law. | This is a compendium of responses to the issues raised by external parties to draft TD 2012/D2 - Income tax: capital gains: for the purposes of paragraph 115-228(1)(a) of the Income Tax Assessment Act 1997 , can a beneficiary of a trust estate be reasonably expected to receive a share of the net financial benefit referable to a capital gain made by the trust estate in an income year if the fact that the capital gain was made is not established until after the end of the income year? | This compendium of comments has been edited to maintain the anonymity of entities that commented on the draft ruling. | ATO Response/Action taken | Irrevocability of a trustee resolution not essential for an expected outcome to be reliably based | A similar issue arises in paragraph 29 of the draft Determination implying that a reasonable expectation may only be founded in an irrevocable resolution of the trustee. | Paragraphs 5 and 29 have been changed in the final Determination to delete this reference. | However, if in relevant situations the facts suggest that a resolution is likely to be revoked (if indeed this is even permitted under the deed), an expectation of receiving the relevant benefits may be unreasonable. But such situations are not readily envisaged and the Commissioner would therefore expect them to be unusual. [For example, if a resolution is only able to be revoked in unusual or exceptional circumstances, it would be unusual to expect this to happen.] | A statement to this effect has been included in the explanation, but as the situation is expected to be unusual, no separate example on this point has been included. | Example 1 - The final determination should clarify that, if the relevant CGT asset is subsequently disposed of under a different contract (for example, a contract entered into in the year ended 30 June 2014 - 'contract A') then, depending on the powers contained under the trust deed and the wording of the trustee resolution made by the trustee of the Bottomley Trust before 31 August 2012, Potts Pty Ltd may be reasonably expected to receive a share of the net financial benefit referable to the capital gain arising from contract A under the resolution made before 31 August 2012. | The example has been changed so that the trustee resolution refers to any capital gain arising on the disposal of the shares rather than to the disposal under the particular contract of sale. A note has been added to confirm that the resolution referred to in the example would create a specific entitlement to the capital gain (if any) arising on any disposal of the shares (including, for example, if the contract entered into in November 2011 does not complete, but a subsequent contract does). | For clarity, the ATO is asked to provide its view on whether a beneficiary can be made specifically entitled to a capital gain within 2 months after 30 June of the relevant income year in such a case. | Alternatively, if the deed was silent about what happens to undistributed income at 30 June (that is, there was no default beneficiary clause and no accumulation clause), the resolution may be a distribution of income in August, effective to create a reasonable expectation of receiving the financial benefit referrable to any capital gain. Such a resolution would not however be effective for section 97 purposes more generally. So as to avoid any possible confusion on this point, and because it would seem unusual for a trustee to only deal with a capital gain component of income separately to and / or at a later time to any other dealings with its income, a separate example on this point was not included in the Final Determination. | Example 3 - The following sentence should be removed from paragraph 13 in the Draft Determination: "The trustee has no power to vary the terms of the trust." This sentence infers that the existence of this power can be problematic with respect to determining whether a particular beneficiary could be reasonably expected to receive a share of the net financial benefit referable to a capital gain. Nearly all trusts have such a power. The existence of such a power should not be relevant, unless and until it is exercised, with respect to making the relevant determination. Further, until such time as the trustee exercises the power to vary the terms of the trust (if such a power exists in the trust deed), the beneficiary in the example should have a reasonable expectation of receiving the net financial benefit of the capital gain. Therefore, to ensure no undue inference arises, this sentence should be removed. | However, as with the likelihood of resolutions being revoked (discussed above at issue 1), if a capital beneficiary's rights under the deed are likely to be varied before a gain is realised, those circumstances may prevent the deed founding a reasonable expectation of the capital beneficiary receiving the relevant gain. However, the Commissioner would expect that such circumstances would be unusual.