Tax Laws Amendment (2011 Measures No. 7) Act 2011 (147 of 2011)

Schedule 1   Removing tax issues facing special disability trusts

Part 1   Extending CGT main residence exemption to special disability trusts

Income Tax Assessment Act 1997

4   After section 118-210

Insert:

Special disability trusts

118-215 What the following provisions are about

The trustee of a trust that is or has been a special disability trust may be eligible for an exemption to the extent that a dwelling is the main residence of the individual who is or has been the principal beneficiary of the trust.

Another beneficiary of the trust may be eligible for an exemption if the dwelling is distributed to that other beneficiary at or after the principal beneficiary's death.

Note: The following provisions also apply to the exemption about compulsory acquisitions of adjacent land (see section 118-245).

118-218 Exemption available to trustee - main case

(1) This section applies to you in relation to a *CGT event if:

(a) the CGT event happens in relation to a *CGT asset; and

(b) just before the CGT event happens, you hold the CGT asset as trustee of a trust; and

(c) the trust was a *special disability trust on at least one of the days on which you held the CGT asset.

(2) For the purposes of applying this Subdivision in relation to the *CGT event, on each day to which paragraph (1)(c) applies:

(a) treat yourself as holding the *CGT asset personally (and not as trustee of the trust); and

(b) if the *principal beneficiary of the trust uses the applicable *dwelling in a particular way on that day - treat yourself as using the dwelling in that way on that day.

Example: If the principal beneficiary uses the dwelling as his or her main residence on the day, then treat yourself as using the dwelling as your main residence on that day.

Note 1: The CGT asset need not be a dwelling (or an ownership interest in a dwelling) if it is land adjacent to a dwelling, an adjacent structure of a flat or home unit, or an ownership interest in such an asset.

Note 2: If the trustee is an individual, the individual's actual circumstances are ignored. Similarly, this subsection does not affect how this Subdivision applies for the individual's actual circumstances. See section 960-100.

(3) If you are not an individual, treat yourself as being an individual for the purposes of applying this Subdivision in relation to the *CGT event.

(4) If the *CGT asset, or your *ownership interest in it, *passed to you as a beneficiary in a deceased estate:

(a) treat the deceased as never having used the applicable *dwelling for the *purpose of producing assessable income; and

(b) treat the dwelling as being the deceased's main residence on each day during the deceased's *ownership period;

for the purposes of applying this Subdivision in relation to the *CGT event.

118-220 Exemption available to trustee - after the principal beneficiary's death

This section applies to you in relation to a *CGT event if:

(a) the trustee of a trust holds a *CGT asset on a particular day (the transition day ); and

(b) on the transition day, or on an earlier day on which the CGT asset was held by the trustee of the trust, the trust is a *special disability trust; and

(c) the individual who is or has been the *principal beneficiary of the trust dies on the transition day; and

(d) the CGT event happens in relation to the CGT asset at or after the deceased's death; and

(e) the CGT event happens while you hold the CGT asset:

(i) as trustee of the trust; or

(ii) as trustee of an implied trust arising because of the deceased's death.

118-222 Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary's death

This section applies to you in relation to a *CGT event if:

(a) the CGT event happens in relation to a *CGT asset; and

(b) you *acquired the CGT asset or your *ownership interest in it:

(i) as a result of an earlier CGT event; and

(ii) as a beneficiary of a trust; and

(c) section 118-220 applied to the trustee of the trust in relation to the earlier CGT event and the CGT asset.

118-225 Amount of exemption available after the principal beneficiary's death - general

Full exemption for trustee unless sells asset for proceeds etc.

(1) A *capital gain or *capital loss you make from a *CGT event is disregarded if:

(a) section 118-220 applies to you in relation to the CGT event; and

(b) as a result of the CGT event, an entity *acquires the *CGT asset:

(i) as trustee of an implied trust arising because of the deceased's death; or

(ii) as a beneficiary of the relevant trust referred to in paragraph 118-220(e).

Exemption for beneficiary, or trustee selling asset for proceeds etc.

(2) If:

(a) section 118-220 applies to you in relation to a *CGT event, but paragraph (1)(b) does not; or

(b) section 118-222 applies to you in relation to a CGT event;

the amount of the *capital gain or *capital loss that you would have made apart from this section from the CGT event is decreased by an amount that is reasonable.

(3) In determining what is a reasonable decrease:

(a) if section 118-220 applies to you, but paragraph (1)(b) does not - treat yourself as being an individual who owned the *CGT asset as the trustee of the deceased's estate; and

(b) if section 118-222 applies to you - treat yourself as being an individual and treat the CGT asset or your *ownership interest in it as having *passed to you as a beneficiary in the deceased's estate; and

(c) have regard to the principles in this Subdivision, and to:

(i) the extent that the applicable *dwelling was the deceased's main residence for the relevant period; and

(ii) the extent that the dwelling was used for the *purpose of producing assessable income during the relevant period.

(4) For the purposes of subparagraph (3)(c)(i), assume the *dwelling was not the deceased's main residence on each day the trust referred to in paragraph 118-220(b) was not a *special disability trust.

118-227 Amount of exemption available after the principal beneficiary's death - cost base and reduced cost base

(1) If section 118-220 applies to you and:

(a) the applicable *dwelling was the deceased's main residence just before the deceased's death; and

(b) that dwelling was not then being used for the *purpose of producing assessable income; and

(c) the trust referred to in paragraph 118-220(b) was then a *special disability trust;

then:

(d) the first element of the *CGT asset's *cost base, in your hands, is the CGT asset's *market value just before the deceased's death; and

(e) the first element of the CGT asset's *reduced cost base, in your hands, is worked out similarly.

(2) However, if section 118-220 applies to you as trustee of an implied trust arising because of the deceased's death, but subsection (1) does not, then:

(a) the first element of the *CGT asset's *cost base, in your hands, is the CGT asset's cost base just before the deceased's death; and

(b) the first element of the CGT asset's *reduced cost base, in your hands, is worked out similarly.

(3) If section 118-222 applies to you:

(a) the first element of the *CGT asset's *cost base, in your hands, is the CGT asset's cost base just before the earlier *CGT event happened that resulted in you *acquiring the CGT asset or your *ownership interest in it; and

(b) the first element of the CGT asset's *reduced cost base, in your hands, is worked out similarly.

118-230 Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts

If *CGT event E5 or E7 happens in relation to a *CGT asset held by a trust that is or has been a *special disability trust, treat the lists of CGT events in paragraphs 118-110(2)(a) and 118-195(2)(a) as including a reference to that CGT event.