Tax Determination TD 2011/21

The Commissioner of Taxation (“Commissioner”) issued Taxation Determination TD 2011/21 on 17 August 2011. The TD will apply retrospectively and prospectively from the date of issue. The Commissioner notes in TD 2011/21 that a gain or loss on the disposal of an investment will not always be on capital account just because the investment is made through a trust.

When deciding whether the gain or loss is revenue or capital in nature (for tax purposes), the Commissioner will consider all the relevant factors. Some of the factors noted in TD 2011/21 include:

• The nature of the trust and terms and contents of the trustee’s duties;
• Nature and scale of the trustee’s investment and other activities;
• Investment style employed in respect of the trust assets;
• Nature of the trust assets;
• Length of time investments are held, the regularity in sale activity involving the trust assets;
• Average annual turnover of the trust assets;
• Percentage of total income which the gains represent; and
• The nature of any connection between the trustee and other parties to the dealings.

In the Commissioner’s opinion a gain or loss will be on revenue account where no provision of tax law treats it as capital and on considering the relevant factors the gain or loss arose under normal operations in the course of carrying on a business. A gain or loss may also be on revenue account where it arises as a result of an extraordinary operation (in the ordinary course of business) entered with the intention of making a profit or a gain, or an isolated one-off transaction that has a profit-making intention.

A gain or loss will be on capital account where the investment is disposed of merely to realise or change the investment. Factors that may suggest a gain or loss is held on capital account include a low average turnover of investments (a percentage below 10%), irregular sale activity, holding stocks for a significant number of years and, a buy and hold style of investment.

The take-home message from TD 2011/21 is trustees should not assume that gains or losses on the disposal of trust investments will always be capital in nature. Going forward a thorough analysis of the relevant factors including the trust deed and the trustee’s powers should be undertaken to determine whether a gain or loss is on revenue or capital account.


If you would like to discuss TD 2011/21 further, please contact any of the following people:

Leon Gorr Partner | Melbourne P +61 3 8644 3619 E This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Lindsay Reed Partner | Melbourne P +61 3 8644 3506 E This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Ari Schachna Partner | Melbourne P +61 3 8644 3590 E This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Yan Li Wang Partner | Melbourne P +61 3 8644 3618 E This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

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