Is the loss made from the disposal of units held in the Property Trust by the Investment Trust on capital account and dealt with under the capital gains tax (CGT) provisions in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. Having regard to the information memorandum, the Trustee's duties under the Investment Trust's constitution, the purpose for which the Investment Trust was established and the manner in which the disposal came about, it is considered that the loss made from the disposal of the units was not made from: • a normal operation of the Investment Trust in the course of carrying on a business of investment • a transaction outside the ordinary course of any business, where the transaction was entered into with the intention of making a profit or gain, or • a one-off or isolated transaction where the investment was acquired in a business operation or commercial transaction for the purpose of profit-making. As such, the Investment Trust is considered to hold the units on capital account and therefore, any loss made on their disposal will be dealt with under the CGT provisions in Part 3-1 of the ITAA 1997. This ruling applies for the following periods : Year ended 30 June 2023 Year ending 30 June 2024 The scheme commenced on: 1 July 2022
You are a unit trust. You have a corporate trustee which is a special purpose entity. You were set up as a single asset vehicle to pool funds from unrelated investors with a single purpose of acquiring an interest in a commercial Property in a joint venture with another investor. The Property Trust was established on XX and owned a single asset, being the Property. Over a three-year period, the Investment Trust acquired XX units or a XX% interest (Interest) in the Property Trust. The total cost of the units' purchase was $XX. The Investment Trust does not own any other assets. The original investment strategy regarding ownership of the Property by the Property Trust was for long term hold (minimum of XX years), for the long-term lease income and capital growth potential. An initial investment term for the Investment Trust in the Property Trust (Investment) was for XX years and was subject to further extensions as decided by you based on recommendations from your commercial manager. The Investment was set up as a 'buy and hold' style of investment and did not envisage an exit point.
The Investment Trust only held one asset, being the Interest, and was not otherwise managed as a business or trading enterprise. The Investment plan for the Investment Trust was to receive passive income by way of distributions from the Property Trust and to hold the Interest for a minimum of XX years. The other XX% interest in the Property Trust was acquired by an unrelated investor. Due to the deterioration in the value of the Property, differing investment strategies between separate commercial managers and the uncertain financial position of the majority unitholder, the Investment Trust agreed to divest of its Interest in the Property Trust to the majority unitholder. In the 2023 income year, the Investment Trust disposed of its Interest in the Property Trust to the majority unitholder for $XX, which resulted in a loss.
Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subsection 104-10(4) Income Tax Assessment Act 1997 subsection 108-5(2) Income Tax Assessment Act 1997 Part 3-1