Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 104 - CGT events  

Subdivision 104-E - Trusts  

SECTION 104-70   Capital payment for trust interest: CGT event E4  

104-70(1)    
CGT event E4 happens if:

(a) the trustee of a trust makes a payment to you in respect of your unit or your interest in the trust (except for *CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and

(b) some or all of the payment (the non-assessable part ) is not included in your assessable income.

To avoid doubt, in applying paragraph (b) to work out what part of the payment is included in your assessable income, disregard your share of the trust ' s net income that is subject to the rules in subsection 115-215(3).

Note 1:

Subsections 104-71(1) (tax-exempted amounts), 104-71(3) (tax-free amounts) and 104-71(4) (CGT concession amounts) can affect the calculation of the non-assessable part.

Note 2:

The non-assessable part includes amounts (tax-deferred amounts) associated with the small business 50% reduction, frozen indexation, building allowance and accounting differences in income.

Note 3:

A payment made to you after you stop owning the unit or interest in the trust forms part of the capital proceeds for the CGT event that happened when you stopped owning it.

104-70(1A)    

However, CGT event E4 does not happen if the unit or interest mentioned in subsection (1) is a unit or interest in an *AMIT.

104-70(2)    

The payment can include giving property (see section 103-5).

104-70(3)    
The time of the event is:

(a) just before the end of the income year in which the trustee makes the payment ; or

(b) if another *CGT event (except CGT event E4) happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year - just before the time of that other CGT event.

104-70(4)    

You make a capital gain if the sum of the amounts of the non-assessable parts of the payments made in the income year made by the trustee in respect of the unit or interest is more than its *cost base.

Note:

You cannot make a capital loss.

104-70(5)    
If you make a *capital gain, the *cost base and *reduced cost base of the unit or interest are reduced to nil.

Note:

A capital gain under former section 160ZM of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see subsection 104-70(3) of the Income Tax (Transitional Provisions) Act 1997 .

104-70(6)    
However, if that sum is not more than the *cost base:

(a) the cost base is reduced by that sum; and

(b) the *reduced cost base is reduced by that sum (without the adjustment in subsection 104-71(3)).

Example:

Mandy owns units in a unit trust that she bought on 1 July 1998 for $10 each. During the 1999-2000 income year the trustee makes 4 non-assessable payments of $0.50 per unit. If at the end of the income year Mandy ' s cost base for each unit (including indexation) would otherwise be $10.10, the payments require that it be reduced by $2, giving a new cost base of $8.10. If Mandy sells the units (CGT event A1) in the 2000-01 year for more than their cost base at that time, she will make a capital gain equal to the difference.

Note:

Cost base adjustments are made only under Subdivision 125-B if there is a roll-over under that Subdivision for CGT event E4 happening as a result of a demerger.

Exceptions

104-70(7)    

A *capital gain you make from *CGT event E4 is disregarded if you *acquired the *CGT asset that is the unit or interest before 20 September 1985.

104-70(8)    

CGT event E4 does not happen to the extent that the payment is reasonably attributable to a *LIC capital gain.

104-70(9)    

CGT event E4 does not happen for a payment made to a foreign resident to the extent that the payment is reasonably attributable to *ordinary income or *statutory income from sources other than an *Australian source. However, this exception does not apply if the trust is a *public trading trust.