Commencing from the 2005-06 income year the trustee of a resident testamentary trust can choose to be assessed on the capital gains for an income year which would otherwise be assessed to an income beneficiary (or the trustee on their behalf).
A resident testamentary trust is a resident trust estate resulting from:
- a will, a codicil or an order of a court that varied or modified the provision of a will or a codicil, an intestacy, or
- an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate.
The trustee will be able to make the choice if, under the terms of the trust, the income beneficiary cannot benefit from the capital gains. It is only the trustee that can make this choice.
If the trustee makes a choice in respect of a beneficiary then:
- the trustee will be assessed on the capital gain included in the beneficiary's share of the trust's net income
- the beneficiary does not take the trust's capital gains into account in working out their net capital gain for an income year.
See our fact sheet Capital gains tax - testamentary trusts and trustees.
Example 103: Testamentary trust
Marcia is entitled to all the income of a resident testamentary trust for the duration of her life. Under the terms of the trust deed, the trust would be wound up on her death and the corpus distributed to Trevor.
While Marcia is alive, the trustee disposes of some shares in the trust and makes a capital gain. Marcia is not entitled under the terms of the trust to receive the proceeds from the disposal of the shares as Trevor is the capital beneficiary.
As the capital gain is included in the net income of the trust for tax purposes, Marcia may be assessed on her share of the capital gain even though she is not entitled to benefit from the gain. The trustee can make a choice to be assessed on the share of the capital gain that would otherwise be assessed to Marcia.