1011495054600 | Legal database

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Edited version of private ruling

Authorisation Number: 1011495054600

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Ruling

Subject: Capital gains tax - deceased estate - transfer of assets from a testamentary trust to a beneficiary

Question

Will a CGT event occur when the assets are transferred from the testamentary trust to a beneficiary?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The deceased passed away after 20 September 1985.

Under the deceased's will, a testamentary trust was created.

The assets included in the testamentary trust were owned by the deceased prior to the date of their death.

You are the trustee of the testamentary trust and also the sole beneficiary.

You as trustee of the testamentary trust will transfer the assets in the trust to you as the sole beneficiary of the trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 Subsection 128-15(3)

Reasons for decision

You may make a capital gain or a capital loss when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event is CGT event A1 which occurs when the ownership in a CGT asset is transferred to another entity.

Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) contains rules that apply when an asset owned by a person just before they died passes to their legal personal representative, or to a beneficiary in a deceased estate.

The scheme of legislation is that a trustee makes a capital gain or capital loss when a trust asset is disposed of to a beneficiary except where Division 128 of the ITAA 1997 applies in relation to the asset. If Division 128 of the ITAA 1997 applies, any capital gain or capital loss the trustee makes when the asset is transferred to a beneficiary is disregarded even though CGT event A1 occurs.

The question often asked is whether the trustee of a testamentary trust, as in this case, is treated in the same way as the legal personal representative is treated for the purpose of Division 128 of the ITAA 1997 and whether the subsequent transfer of the CGT assets to the ultimate beneficiaries would result in a taxing point for the trustee and /or beneficiary.

Although this is a difficult issue, particularly given the wording in section 128-15 of the ITAA 1997, it is open to the Commissioner to follow a long-standing practice that promotes the policy intent of the provisions that might be adopted by a court. In relation to this, the Australian Taxation Office's Practice Statement Law Administration PS LA 2003/12 (PS LA 2003/12) outlines that the trustee of a testamentary trust will be treated in the same way that a legal personal representative is treated for the purposes of Division 28 of the ITAA 1997, in particular subsection 128-15(3). PS LA 2003/12 further outlines that no taxing point will be recognised by the Australian Taxation Office in relation to assets owned by a deceased person until they cease to be owned by the beneficiary.

In compliance with PS LA 2003/12, you in your role as trustee of the testamentary trust will be treated in the same way that a legal personal representative is treated under Division 128 of the ITAA 1997. Therefore, while a CGT event occurs when you as trustee of the testamentary trust transfer the assets from the trust to you as the beneficiary of the trust, this is not a taxing point for you as a trustee, and any capital gain or capital loss made on the transfer of the assets will be disregarded.

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