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ATO Interpretative Decision

ATO ID 2003/99 (Withdrawn)

income tax
Capital gains tax: non-resident trust - disposal of asset without necessary connection to Australia

This ATOID is withdrawn because it involves a simple restatement of the law as it applied in respect of CGT events that happened before 12 December 2006. For CGT events that happened on or after that date Division 136 has been replaced by Division 855 of the Income Tax Assessment Act 1997.'
This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision Withdrawn 11 December 2009

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Will the trustee of a trust, that is not a resident trust for CGT purposes, make a capital gain or capital loss from CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of shares that do not have the necessary connection with Australia?

Decision

No. As the trust is not a resident trust for CGT purposes and the shares do not have the necessary connection with Australia, the trustee will not make a capital gain from CGT event A1 in section 104-10 of the ITAA 1997 on the disposal of the shares.

Facts

The taxpayer is the trustee of a trust that is not a unit trust. The taxpayer is not a resident of Australia and the central management and control of the trust is not in Australia.

The trust owns shares in an Australian resident company that is listed on the Australian stock exchange. The trust owns less than 10% of the total value of the shares in the company and has not owned more than 10% by value of the shares of the company at any time during the 5 years before the shares were sold.

During the year the trustee disposed of some of these shares.

Reasons for Decision

If a trust is not a resident trust for CGT purposes, the trustee will only make a capital gain or capital loss from a CGT event if the CGT asset which is the subject of the event has the necessary connection with Australia (sections 136-5 and 136-10 of the ITAA 1997).

A resident trust for CGT purposes is defined in subsection 995-1(1) of the ITAA 1997:

   'A trust is a resident trust for CGT purposes for an income year if, at any time during the income year:

a)
 for a trust that is not a unit trust, a trustee is an Australian resident or the central management and control of the trust is in Australia; or ...'

In this situation, the trust is not a unit trust. The trustee is not a resident of Australia nor is the central management and control of the trust in Australia. It is therefore considered that the trust is not a resident trust for CGT purposes and will only make a capital gain or capital loss if the shares sold have the necessary connection with Australia.

The table in section 136-25 of the ITAA 1997 sets out when CGT assets have the necessary connection with Australia. Items 3 and 5 in the table specify when shares have the necessary connection with Australia. Item 5 is relevant in this case. It provides that a share in a company has the necessary connection with Australia if it is:

   'A share or an interest in a share, in a company:

a)
 that is an Australian resident, and a public company, for the income year in which the CGT event happens; and
b)
 in which you and your associates beneficially owned at least 10% by value of the shares of the company (except shares that carried a right only to participate in a distribution of profits or capital to a limited extent) at any time during the 5 years before the CGT event happens.'

'Public company' is defined in subsection 995-1(1) by reference to section 103A of the Income Tax Assessment Act 1936 (ITAA 1936). Paragraph 103A(2)(a) of the ITAA 1936 provides that a company is a public company if shares in it, not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits, were listed for quotation in the official list of a stock exchange, being a stock exchange in Australia or elsewhere, at the last day of a year of income.

In this case, the shares held by the trust are shares in an Australian resident company that is listed on the Australian stock exchange. However the trust has not owned 10% or more by value of the shares in the company at any time during the 5 years before the shares were sold. It is therefore considered that the shares do not have the necessary connection with Australia and the trustee will not make a capital gain under section 104-10 of the ITAA 1997 on the disposal of the shares.

Date of decision: 28 October 2002

Year of income:Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 104-10
   section 136-5
   section 136-10
   section 136-25
   subsection 995-1(1)

Income Tax Assessment Act 1936
   section 103A
   paragraph 103A(2)(a)

Related ATO Interpretative Decisions
ATO ID 2003/100
ATO ID 2003/101

Keywords
Capital gains tax
Capital gain
Trusts
Resident trusts
Trustees
CGT asset with the necessary connection with Australia
Non resident trusts

Date of publication: 15 March 2003

ISSN: 1445-2782

ATO ID 2003/99 (Withdrawn) history   Top  
   Date   Version 
   28 October 2002   Original statement   
 You are here ®  11 December 2009   Withdrawn   


 


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