CGT Event E9

 

 

What is CGT Event E9?

CGT Event E9 is where a taxpayer receives a payment for agreeing to hold future property on trust. At the time of the agreement, no potential beneficiary under the trust can have a beneficial interest in the rights created by the agreement.

The rules dealing with CGT Event E9 are primarily contained in section 104-105 of the Income Tax Assessment Act 1997 (ITAA).

When does CGT Event E9 occur?

CGT Event E9 occurs at the time the agreement is made, whether it be in writing or verbal.

How to calculate CGT Event E9 capital gain or loss

The taxpayer makes a capital gain if (and to the extent) the market value of the property at the time of the agreement is more than any incidental costs the taxpayer incurs that relate to the event. The taxpayer makes a capital loss if the market value is less than the incidental costs.

Here, incidental costs can include the market value of property which is given (per section 103-5 ITAA). Typically, incidental costs would include things that relate to making the agreement. For example, legal fees incurred by the taxpayer to the extent they relate to facilitating the relevant agreement. Incidental costs do not include an amount the taxpayer receives as recoupment and that is not included in their assessable income, or an amount the taxpayer can deduct.

As mentioned, it is necessary to ascertain the market value of the future property at the time of agreement as if it were held at that time. Refer to subdivision 960-S of the ITAA for various matters to consider when it comes to ascertaining market value.

Examples

Section 104-105 of the ITAA provides a simple enough explanation about when CGT Event might E9 apply. The key is that there is an agreement for a taxpayer to hold future property on trust and that, at the time of agreement, no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement.

Take the example of Bill and Sally. Bill has decided to soon acquire a CGT asset through a trust and. He asks Sally to act as trustee. Bill offers to pay her $10,000 for doing so, provided she incurs legally expenses to draft up the agreement. Sally agrees to these terms. The market value of the asset to be purchased at the time of agreement is $50,000. Sally incurs $2,000 in legal fees to prepare the agreement. Bill is not a potential beneficiary under the trust and no other potential beneficiary will have a beneficial interest in the rights created by the agreement. The capital gain for Sally is $48,000. That is, $50,000 (the market value of the asset to be held on trust at time of agreement) less $2,000 (the legal fees which relate to the event E9).

In TR 2000/1, the ATO contemplates that CGT Event E9 might occur in the context of general and life insurance companies acquiring or disposing of an insurance register. In particular, where an agent agrees for consideration to hold future renewal, CPI and/or orphan policy commissions as trustee of a discretionary trust and at the time of agreement no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement. In these circumstances, the agent would make a capital gain if the market value of the commissions received (assuming the commissions had existed at the time of making the agreement) are more than the incidental costs incurred by the agent that relate to the event.

CGT discounts and concessions

The general CGT discount (Division 115 ITAA) is not available to discount a capital gain under CGT Event E9.

However, the small business CGT concessions (Division 152 ITAA) may be available to reduce a capital gain so long as the eligibility conditions are satisfied.

The main residence exemption (Subdivision 118-B ITAA) is not applicable.

This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.