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The AAT has held that CGT event A1 applied to the sale of a business by a trustee of a unit trust, with the result that it happened in the 2007 income year when the contract for sale was signed, rather than CGT event B1. Had CGT event B1 applied, so the taxpayers argued, it would have happened in the 2008 income year.

The taxpayers argued that CGT event B1 applied rather than CGT event A1 because settlement of the contract did not take place on the settlement date stipulated in the contract for sale; instead, the purchaser was given the right to use the business pending the ultimate settlement under a separate deed of licence entered into subsequent to the contract for sale. The taxpayers' argument that the contract for sale and the deed of licence were a single agreement was rejected by the AAT.

The AAT said, at paras 128-129:

"In view of my finding that there is no single agreement, I find that CGT event B1 has not happened.[97] The right to the use and enjoyment of the Spirou business passed to Culliford under the Deed of Licence. The title in would or might pass (and in fact did pass) under the Contract. They were separate agreements meaning that the criteria in ss 104-15(1)(a) and (b) cannot be met...

My conclusion means that s 102-25 of ITAA97 does not arise for consideration for I have found that only CGT event A1 happened. I have considered s 102-25, though, in case my conclusion should be incorrect. If I am incorrect that there is no single agreement comprising each of the three agreements, each of the three agreements would continue to retain its individual identity but under the umbrella of an overarching agreement. That would raise the application of s 102-25 and a determination of whether CGT event A1 or B1 is more specific to the taxpayer’s situation."

All the units in the unit trust were held by the trustee of a family trust. Under the trust deed of the unit trust, the income of the unit trust was to be determined in accordance with s 95(1) of ITAA 36, unless the trustee exercised the power conferred upon it by the trust deed to exclude the capital gain arising from the sale of the business. The AAT found that the power had not been exercised, with the result that the income of the unit trust included the capital gain, to which the trustee of the family trust was presently entitled. The AAT held that the taxpayers, being the beneficiaries of the family trust were, in turn, presently entitled to the whole of the income of the family trust. Accordingly, the AAT held that the taxpayers had not discharged the onus of proof required to show that the assessments raised by the Commissioner against the taxpayers were excessive.

The proceedings were adjourned to consider a further issue as to whether the sale of the business exceeded the maximum net asset value test under Subdivision 152A of ITAA97.

Confidential and FCT [2014] AATA 952 (AAT, Forgie DP, 19 December 2014).


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