Issue
Will the entity, a public trading trust as defined in section 102R of the Income Tax Assessment Act 1936 (ITAA 1936), be eligible for the CGT discount under Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. A capital gain made by a public trading trust, as defined in section 102R of the ITAA 1936, is eligible for the CGT discount under Division 115 of the ITAA 1997 provided the requirements in section 115-5 of the ITAA 1997 are met.
Facts
The public trading trust made a capital gain from the sale of shares that it acquired after 21 September 1999. The trust had owned the shares for more than 12 months at the time that it disposed of them.
The trust has not made a choice under section 703-50 of the ITAA 1997 to form a consolidated group.
Reasons for Decision
A capital gain which meets the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 is a discount capital gain, unless sections 115-40 and 115-45 of the ITAA 1997 apply to treat the capital gain as not being a discount capital gain (section 115-5 of the ITAA 1997).
Under paragraph 115-10(c) of the ITAA 1997, a capital gain made by a trust can be a discount capital gain. A public trading trust is a 'trust' for the purpose of this paragraph.
As the capital gain made by the public trading trust satisfied all the other requirements for a 'discount capital gain' under section 115-5 of the ITAA 1997, the capital gain is eligible for the 50% CGT discount under Division 115 of the ITAA 1997. Note 1: A corporate unit trust as defined in section 102J of the ITAA 1936 that has not made a choice under section 703-50 of the ITAA 1997 to form a consolidated group, will also be eligible for the CGT discount under Division 115 of the ITAA 1997. Note 2: Tax Laws Amendment (2004 Measures No.2) Act 2004 inserted the new Subdivision 713-C of the ITAA 1997 effective from 1 July 2002. This subdivision allows a public trading trust or a corporate unit trust to form a consolidated group as if the trust were a company.
Once a public trading trust or a corporate unit trust has made the choice, it will continue to be treated like a company for income tax and related purposes for the rest of its existence. A company is not one of the entities that can make a discount capital gain as specified at section 115-10 of the ITAA 1997.