The taxpayer has lodged an application for special leave to appeal to the High Court from the Full Federal Court decision in FCT v Greenhatch [2012] FCAFC 84. The Full Federal Court had unanimously upheld the Commissioner’s appeal and held that the assessable income of a beneficiary presently entitled to a discounted capital gain made by the trust was only the discounted proportion of the gain, and not the whole gain as originally decided by the AAT.
[FJM Note: The way this is being reported doesn’t make sense to me. There is an issue, post Bamford, as to whether a capital gain can be streamed through the s97(1)(a) gate if others got the income (which is what I thought this case was about, and why the appeal has been funded). I thought it pretty obvious however, under s115-215, that a taxpayer who is ‘presently entitled’ to a discounted capital gain, will not have the grossed-up ‘trust amount’ included in their assessable income. This is because s115-215(3) only deems that grossed up-amount to be included in the beneficiary’s ‘capital gain’. And before that ‘capital gain’ can be included in the beneficiary’s assessable income (under s102-5), the beneficiary can deduct any capital losses they have, and they can discount the gain by 50% once or twice (depending on whether the trust was able to discount the gain once or twice, and whether the beneficiary was eligible under either or both of Div 115 and Subdiv 152-C – see the way s115-215(4) works).]
[LTN 113, 13/7]