Issue
Is rollover relief available, to the trust and its unit holders, under Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) where the entity, a unit trust, disposes of all its assets to its resident trustee company?
Decision
Yes. Rollover relief is available, to the unit trust and its unit holders, under Subdivision 124-N of the ITAA 1997 where the entity, a unit trust, disposes of all its assets to its resident trustee company.
Facts
The unit trust carries on a business. The trustee is an Australian resident and is a company limited by shares. The trustee will restructure the unit trust by disposing of all the assets of the trust to itself. The unitholders will exchange their units for shares in the trustee company. The trust will cease to exist.
Reasons for Decision
Rollover relief is available to a unit trust and its unitholders under Subdivision 124-N of the ITAA 1997 where the trust disposes of all its CGT assets to a company limited by shares and its units are replaced with shares in the company.
The company must satisfy the conditions at section 124-860 of the ITAA 1997. Some of these conditions are set out at subsection 124-860(4) of the ITAA 1997. These conditions include that the company must never have carried on commercial activities, had no CGT assets other than a small amount of cash or debts, and had no losses of any kind.
The conditions placed on the company by subsection 124-860(4) do not apply where the company is the trustee of the trust. Subsection 124-860(5) of the ITAA 1997 provides that subsection 124-860(4) does not apply where the company is the trustee of the transferor trust. The explanatory memorandum relating to Taxation Laws Amendment Bill (No. 4) 2002 states in reference to subsection 124-860(5): There will be situations where the trustee of the trust is itself a company (a corporate trustee). Rather than requiring the trust to set up a new company for the purpose of the rollover it permits the trust to dispose of its assets to the corporate trustee and be eligible for the rollover.
Therefore, the rollover relief under Subdivision 124-N of the ITAA 1997 is available to the unit trust and its unit holders where all the unit trust's CGT assets are transferred to its corporate trustee, provided all the other conditions of the Subdivision are satisfied.