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CGT trust streaming: beneficiary can be "reasonably expected to receive net financial benefit" - Draft Taxation Determination TD 2012/D2

The ATO has formed the view that in certain circumstances:

  • a beneficiary of a trust estate can be "reasonably expected" to receive a share of the net financial benefit referable to a capital gain for the purposes of the "CGT trust streaming measures" (Ss 115-228(1)(a) of the ITAA 1997);
  • even if the making of the capital gain cannot be established until after the end of the income year.
Kirk Wilson, Thomson Reuters

The ATO emphasises that the "reasonable expectation" requirement is directed to the future receipt of an amount referable to the gain should it arise, and not to the likelihood of the gain itself occurring.

The ATO released a Draft Taxation Determination on the topic on 1 February 2012. You can read the full draft determination here.

Examples of the relevant circumstances

The ATO's draft determination provides a number of examples of the relevant circumstances in which the beneficiary of a trust estate can be "reasonably expected" to receive a share of the net financial benefit. The examples include the following.

Example 1 conditional contract


In November 2011, the Trustee of the Bottomley Trust entered into a binding contract for the sale of shares with settlement to take place in November 2016. The contract contained a number of conditions which must be fulfilled before either party to the contract is obliged to complete. Therefore, although there is an immediately binding contract which creates rights and obligations capable of enforcement, the contract is subject to the fulfilment of conditions subsequent to its formation. Accordingly:

  • the obligation of the parties to perform is contingent on the fulfilment of the conditions; and
  • non-fulfilment confers a right to terminate.

Because the completion of the contract is contingent on the fulfilment of these conditions, there is a chance the contract will not settle. Accordingly, when the contact is entered into, there is no certainty that a change of ownership of the shares will occur to cause CGT event A1. If the contract is completed, then the sale proceeds will form part of the capital of the Bottomley Trust.

In a valid exercise of a power under the trust deed to distribute capital, the trustee of the Bottomley Trust resolves by 31 August 2012 to distribute to a beneficiary, Potts Pty Ltd, all of the net financial benefit referable to any capital gain arising on the disposal of the shares. The deed provides that trustee resolutions made in accordance with the deed are irrevocable.

The law

Subdivision 115-C of the ITAA 1997 applies if there is a net capital gain of a trust estate included in the net income of that trust.

The result of the law

If the contract for the sale of shares settles and results in a capital gain to the Bottomley Trust, then Potts Pty Ltd will satisfy the requirement under s 115-228(1)(a) of the ITAA 1997 that it can be reasonably expected to receive a share of the net financial benefit referable to the capital gain.

The fact that the happening of CGT event A1 (and the making of a capital gain) is contingent on the completion of the contract for sale does not preclude Potts Pty Ltd from demonstrating a reasonable expectation of receiving the financial benefit referable to the capital gain if the contract completes.

Therefore, the trustee's resolution to distribute an amount equal to the net financial benefit referable to the capital gain founds a reasonable expectation of Potts Pty Ltd receiving that amount if the contract completes.

Example 2 no contract yet in contemplation

The trust deed for the Morse Trust provides that Hercules is entitled to receive all of the income and any gains or proceeds in respect of shares held in Dairy Pty Ltd. The trustee has no power to vary the terms of the trust. Accordingly, the deed establishes a reasonable expectation of Hercules receiving the financial benefit referable to any capital gain that is made by the trust estate in respect of those shares.

Date of effect

When finalised, the Determination is proposed to apply both before and after its date of issue.

Comments to ATO

Comments are due by 2 March 2012, to ATO contact: Amanda Connolly, Tel: (07) 3213 5456, Fax: (07) 3213 5971, Email:

Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please


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