Capital gains tax: trustee ceasing to hold an asset on trust and commencing to hold it in its own capacity - CGT event A1

Does CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 ( ITAA 1997) happen if a company ceases to hold a CGT asset in its capacity as trustee of a trust and commences to hold the asset in its own capacity?

Yes. CGT event A1 in section 104-10 of the ITAA 1997 happens because there is a change in ownership of the asset from one entity (the company acting in its capacity as trustee) to another entity (the company acting in its own capacity).

The trustee of a unit trust holds a CGT asset on trust. The trustee is an Australian resident and is a company limited by shares.

As part of a restructure, the trustee ceases to hold the asset on trust and commences to hold the asset in its own capacity as a company. The unit holders under the restructure exchange their units in the trust for shares in the company. The trust is subsequently wound up.

CGT event A1 in section 104-10 of the ITAA 1997 happens if there is a disposal of a CGT asset. Under subsection 104-10(2) of the ITAA 1997, a disposal of a CGT asset occurs if there is a change in ownership of the asset from one entity to another entity.

The term 'entity' is defined in section 960-100 of the ITAA 1997 and includes a body corporate - paragraph 960-100(1)(b) of the ITAA 1997. Where a legal person, such as a body corporate, has a number of different capacities in which the person does things, subsection 960-100(3) of the ITAA 1997 provides that the person is taken to be a different entity in each of those capacities. It follows from this that a body corporate acting in its capacity as a trustee of a trust is a different and distinct entity from the same body corporate acting in its own capacity.

Because of this, the requirements for CGT event A1 to happen are satisfied as there has been a change in ownership of the asset from one entity (the company acting in its capacity as trustee) to another entity (the company acting in its own capacity). This is the case notwithstanding that there has been no change in the legal ownership of the asset. Note: roll-over relief may be available for the corporate trustee in these circumstances under Subdivision 124-N of the ITAA 1997 if all the conditions for the roll-over are satisfied.