Question:
Just wondering if you could assist please with a CGT calculation for a commercial property owned by a unit trust.
It is a commercial property from which my clients run their business. They lease it to their trading entity, another unit trust. They will continue to lease the premises from the new owners.
I understand that there are some anomalies in calculating the CGT for Unit Trusts.
The Unit Trust has a corporate trustee, and the two unitholders are Discretionary Trusts holding 10 units each @ $1-.
From my calculations below (not published by bO2 to protect privacy), you can see a gross gain of $ 604,965 which will be split between each discretionary trust, i.e., $302,482 CGT each before any CGT concessions. I just need to know what they are entitled to, how it all works in the unit trust, flowing the funds out to their discretionary trust and the beneficiaries.
Answer
While we have not reviewed source data, your calculations on the CGT event A1 appear to be correct. Next, you must work out the CGT event A1 gain at the discretionary trust and individual level.
In addition, we draw your attention to capital gains tax event E4.
E4 only applies if some or all the payment to unitholders is non-assessable income previously sheltered from tax by the CGT active asset discount, the building allowance under Division 43, or a return of capital.
Broadly, CGT Event E4 operates to write down the cost base that the recipient unit holder has in their units in the trust (a nominal $10) by the amount of the distribution. And to the extent there is an excess, the recipient unit holder makes a capital gain.
The conditions for eligibility are outlined on page 54 of our annual publication. The steps to work out CGT event E4 are outlined in the following:
Cash paid by the unit trust
- Less amount included as the trust distribution
- Less amount sheltered by CGT active asset discount
- Less amount sheltered by Div43 building allowance
- Less cost base of the units
= Amount subject to CGT event E4
If the CGT Small Business Concessions apply, CGT Event E4 may be reduced by the CGT active asset discount. If the units are active assets and the 90% significant individual test can be met. The E4 gain may be further reduced by using the Retirement Concession to effectively eliminate the capital gain.
As each relevant individual has a lifetime limit of $500k for the retirement concession. The use of the concession must be carefully considered if significant small business capital gains are expected to occur in the future when the business is eventually sold.
If the “significant individuals” are less than 55 years of age, this amount must be contributed to superannuation. Those over 55 effectively have a choice, and there is no requirement that the funds go into super.