In a case involving CGT and trust issues, the AAT has held that the sale of a business was a CGT event A1 that happened in the 2007 income year [for the vendor unit trust and that beneficiaries of unit holding trusts. However, the Tribunal then adjourned the case] for consideration issues surrounding the maximum net asset value test and the small business CGT concessions.

[As the applicants had asked that the hearing of the matter be held in private, the Tribunal said it used pseudonyms for the applicants and for others to whom it was necessary to refer.]

  • At the time of the hearing, one of the applicants was Azrae Pty Ltd (‘Azrae’).
  • [Azrae was] the trustee of the Spirou Unit Trust and owned:
  1. oa business (the ‘Spirou Business’); and
  2. othe premises from which that business was operated.
  • When Azrae sold the business in 2007, it made a capital gain.
  • Corbelius Pty Ltd (‘Corbelius’) [was] the trustee of the Pierre Family Trust [(the ‘Family Trust’)] and the Family Trust owns all of the units that have been issued in the Spirou Unit Trust [(the ‘Unit Trust’)].
  • The Tribunal said Pierre and his wife, Andrée, are the beneficiaries of the Family Trust and the 2 applicants in this case.
  • Pierre is the sole director and shareholder of both Azrae and Corbelius.
  • The Financial Statements prepared in relation to the 2007 income year show a loss.
  • [However,] the issues in this case revolve around when the CGT event arising from the sale of the business occurred and whether the capital gain is taxable in the hands of Azrae as trustee [of the Unit Trust] or in those of Pierre and Andrée as beneficiaries of the Family Trust.

The Commissioner issued alternative assessments to each of Azrae [which sold the Spirou Business as trustee of the Unit Trust and to] Pierre and Andrée [as beneficiaries of the Family Trust in relation] to income from the Unit Trust. He has not issued assessments against Corbelius, as the trustee of the Family Trust, as the Commissioner took the view that [that Trust] had distributed any income it received from the Unit Trust to Pierre and Andrée.

The Tribunal decided that in relation to the Spirou Business, its sale was a CGT event A1 [for the Unit Trust] that happened in the 2007 income year.

On the trust-related issues in question, the Tribunal found that Pierre and Andrée had not established, on the balance of probabilities, that Azrae [trustee of the Unit Trust] made a determination that the Spirou Unit Trust had a nil income.

  • In fact, the Tribunal said they have established that it did not make a determination.
  • That means they did not satisfy the burden of proof under s 14ZZK(b)(i) that their assessments were excessive.
  • The Tribunal found the applicants had not proved that the ‘net income’[??] of the Spirou Unit Trust was not assessable income to which they had a ‘present entitlement’[??].*

As matters relating to issues arising out of the application of the maximum net asset value test or the application of [Sub-div 152-C: the small business CGT concessions] remained in issue, the Tribunal adjourned [the matter for] further consideration.

([2014] AATA 952, AAT, Forgie DP, AAT Ref: 2012/3559, 19 December 2014.)

[*This is not how s97 of the ITAA36 works – unless this is just ‘license’ taken in this summary.]

[LTN 1, 5/1/15]