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Will a capital gain or loss made by a trustee be disregarded under subsection 104-75(4) of the Income Tax Assessment Act 1997 (ITAA 1997), upon the vesting of the trust, with the beneficiaries becoming absolutely entitled to the trust assets (shares in a company) where the assets of the trust were acquired prior to 20 September 1985?

Yes, where the assets were acquired prior to 20 September 1985, any capital gain or loss that accrues to the trustee upon the vesting of the trust, with the beneficiaries becoming absolutely entitled to the shares as against the trustee will be disregarded under subsection 104-75(4) of the ITAA 1997.

A discretionary trust was established prior to 20 September 1985. The trust property comprises shares (acquired prior to 20 September 1985) in a private company. It is proposed to vest the trust, with the beneficiaries becoming absolutely entitled to the shares.

The proposed vesting of the trust will mean that each beneficiary becomes absolutely entitled to a CGT asset of the trust (in this case, shares) as against the trustee, causing CGT event E5 to happen under section 104-75 of the ITAA 1997. The time of the event is when each beneficiary becomes absolutely entitled to the shares.

The trustee makes a capital gain if the market value of the shares at the time of the event is more than the cost base of the shares, and makes a capital loss if the market value is less than the reduced cost base of the shares (subsection 104-75(3) of the ITAA 1997).

However, as the shares were acquired by the trustee before 20 September 1985, and did not stop being pre-CGT assets of the trust, any capital gain or loss that arose would be disregarded as provided in subsection 104-75(4) of the ITAA 1997.