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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012763235165

Ruling

Subject: Capital gains tax

Question 1

Will the trustee for the estate be liable for capital gains tax (CGT) on the sale of the property?

Answer

Yes

Question 2

Will the individual beneficiaries of the deceased estate be liable for any CGT on the sale of the property?

Answer

No

This ruling applies for the following period<s>:

Income year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The deceased, X died on the X.

Probate of the estate was granted to the executor on X.

Administration of the estate was undertaken by the executor until X after which time the trustee was appointed.

The assets of the estate included the property.

Under the deceased will the trustee holds the property on trust for three primary beneficiaries; one beneficiary holds a life interest in the property while the other two have a remainder interest.

Under the will, on the death of the beneficiary with the life interest the property would pass to the two other primary beneficiaries as tenants in common with equal shares.

The three beneficiaries and the trust entered into a Deed of Release and Indemnity. The effect of which is that the trustee will sell the property and each party will received 1/3 of the net proceeds.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-10

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 128-10

Income Tax Assessment Act 1997 section 128-15

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or capital loss if, and only if, a CGT event happens to a CGT asset.

Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. It provides that CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) defines a disposal as:

However section 128-10 of the ITAA 1997 provides that a capital gain or capital loss is disregarded when asset devolves to your legal personal representative or passes to a beneficiary under your will.

Taxation Ruling TR 2006/14 provides the Commissioner's view on the capital gains tax consequence of creating life and remainder interests in property and of later events affecting those interests. Paragraph 187 provides:

Consequently in your situation the assets will not pass to the beneficiaries but rather the trustee will sell the property and distribute the net proceeds to the beneficiaries under the Deed of Release and Indemnity. Consequently it will be the trustee and not the beneficiaries that are liable for any capital gains tax.

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