In a decision handed down on Wed 28.1.2015, the Full Federal Court unanimously dismissed the taxpayer’s appeal from the decision in Taras Nominees Pty Ltd as Trustee for the Burnley Street Trust v FCT [2014] FCA 1.

In that case, the Federal Court held that the taxpayer had effected the disposal of land that it owned to a “joint-venture trust” that had been created over the land for its commercial development, and had done so by way of a “resettlement”. Accordingly, it found that CGT under CGT event E1 of the ITAA 1997 applied to the transaction and that, furthermore, the exception for “no change in the beneficial ownership of a CGT asset” did not apply in the circumstances. At the same time, it found that CGT event A1 applied to the transaction also.

On appeal, the taxpayer challenged the finding that a “settlement” of the land had occurred for the purposes of triggering CGT event E1.

In unanimously confirming that such a “settlement” had occurred, the Full Court first noted that a “key indicator” of a settlement was “the vesting of property in a trustee for the benefit of others”. It then found that in terms of the relevant trust deeds and joint venture agreement, the taxpayer had divested itself of legal title to the land and subjected its equitable interests in the land to the joint venture trust for the benefit of others (in addition to itself). It therefore also found that the relevant exceptions did not apply because the taxpayer did not remain absolutely entitled to the land.

The Full Court also confirmed that CGT event A1 also applied for the “reasons for concluding that CGT event E1 happened” – namely, that there was a change of ownership of the land from the taxpayer to the trustee of the “joint-venture trust” brought about by the resettlement transaction.

Finally, the Court also confirmed that $5.5m of development costs were correctly included in the market value of the land for capital proceeds purposes in calculating the taxable gain – albeit subject to an adjustment to the cost base of the land to reflect half of these costs incurred by the taxpayer in improving the land.

(Taras Nominees Pty Ltd as Trustee for the Burnley Street Trust v FCT [2015] FCAFC 4, Full Federal Court, Perram, Robertson and Pagone JJ, 28 January 2015.)

[LTN 17, 28/1/15]