Issue
Is the trust to company rollover under Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) available for CGT assets disposed of to the company, during the trust restructuring period, where those assets had initially been retained by the trust to pay existing or expected debts and remained after those debts had been finalised?
Decision
Yes. Rollover under Subdivision 124-N of the ITAA 1997 is available in relation to the CGT assets disposed of to the transferee company during the trust restructuring period.
Facts
The trustee disposed of nearly all of the CGT assets from the unit trust into the company under the trust restructure rollover in Subdivision 124-N. The trustee made a reasonable determination of the CGT assets needed to be retained in the trust to pay existing or expected debts of the trust. When all the debts were settled there were still CGT assets remaining in the trust and these were transferred to the company within six months from the start of the trust restructuring period.
Reasons for Decision
Section 124-860 of the ITAA 1997 sets out the requirements to be satisfied by the transferor, so that rollover relief is available for the disposal of the trust's CGT assets.
All of the CGT assets owned by the transferor, the trust, must be disposed of to the transferee, the company, during the trust restructuring period. However, any CGT assets retained by the transferor to pay existing or expected debts of the transferor can be ignored (subsection 124-860(1) of the ITAA 1997).
The trust restructuring period starts just before the first CGT asset is disposed of to the transferee, the company, under the trust restructure and ends when the last CGT asset of the transferor, the trust, is disposed of to the transferee (subsection 124-860(2) of the ITAA 1997).
As a general rule, the trust must cease to exist within six months after the trust first disposed of a CGT asset to the company under a trust restructure otherwise the effect of the roll-over will be reversed (see the note to section 124-850 of the ITAA 1997 and CGT event J4, section 104-195 of the ITAA 1997).
As it has now been determined that the remaining CGT assets are no longer required to pay the debts of the transferor the trust to company rollover under Subdivision 124-N of the ITAA 1997 is available for these CGT assets.