The question often arises as to whether profits from the sale of assets made by a specific trustee should be treated on capital or revenue account.

There have been a number of cases that have ruled that in the case of a trust investing in assets, the profits are on revenue account but in cases involving investment companies, the profits are on capital account.

The reason for this is that if the taxpayer is a trustee rather than say an investment company, the trustee has fiduciary duties to his beneficiaries which is a relevant factor in the process of characterisation as to whether or not the activities involve a business.

The problem has been resolved for managed investment trusts which invest in certain types of assets as they may make an irrevocable election to be taxed on capital account.

However there is still an issue with other types of trusts.

The Commissioner has issued a draft determination on this issue which, with respect, merely states the obvious and does little to assist taxpayers.

The Commissioner says that the mere fact that a gain or loss from an investment is made by an entity in its capacity as trustee of a trust is not conclusive of the question whether the gain or loss is on revenue or capital account. While this is true it does not take account of the trend in cases to treat trusts differently from other taxpayers. He states the obvious that unless a provision of the income tax law applies to treat the gain or loss as either on revenue or capital account, the characterisation process will necessarily involve a wide survey and an exact scrutiny of all relevant factors to determine whether the trustee’s activities constitute a business or profit making scheme.