Capital Gains Tax: trust to company rollover - capital loss made by unit trust on expiry of a lease during the trust restructuring period

Is the trust to company rollover under Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) available for a capital loss made on the expiry of a lease of the transferor, a unit trust, during the trust restructuring period?

No. The trust to company rollover under Subdivision 124-N of the ITAA 1997 is not available for a capital loss made by the unit trust on the expiry of the lease during the trust restructuring period.

The trustee of the unit trust transferred all of the trust's CGT assets to the company during the trust restructuring period. One CGT asset, a lease, expired during the trust restructuring period and a capital loss was made by the unit trust. The unit trust ceased to exist within six months from the commencement of the trust restructuring period.

Section 124-860 of the ITAA 1997 sets out the requirements to be satisfied by the transferor, the unit trust, so that rollover relief is available for the disposal of the unit trust's CGT assets to the transferee, the company. All of the CGT assets owned by the transferor (other than those assets that come to an end) must be disposed of to the transferee during the trust restructuring period (subsection 124-860(2) of the ITAA 1997).

The expiry of the lease is a CGT event C2 (section 104-25 of the ITAA 1997). Under subsection 104-25(3) of the ITAA 1997 the unit trust made a capital loss as the capital proceeds received on expiry were less than the lease's reduced cost base.

The transferor is unable to transfer this capital loss to the transferee. There is no provision in Subdivision 124-N that permits a transferor to transfer this capital loss or its current year or previous years' net capital losses to the transferee.

The capital loss is taken into account in calculating the unit trust's net capital gain or net capital loss for the year of income in which the CGT event C2 happened.