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Edited version of your written advice
Authorisation Number: 1012804929995
Ruling
Subject: Capital Gains Tax - Deceased Estate - Deed of Arrangement - Life and Remainder Interests
Question 1:
Do you as Trustees of the deceased estate own any CGT assets?
Answer 1:
No.
Question 2:
Is there a CGT event for you as Trustees of the deceased estate when you execute the deed of arrangement and pay the life interest holder a cash distribution?
Answer 2:
No.
This ruling applies for the following period
Year ended 30 June 2015.
The scheme commences on
1 July 2014.
Relevant facts and circumstances
The deceased died a few years ago. Their last will and testament (will) was executed some months prior to their date of death.
The deceased's will, named you as executors and trustees (trustees) of their deceased estate (estate). You obtained a grant of probate of the will some months later.
The deceased's parent is deceased. The deceased parent was also the life interest owner's parent.
The will devised and bequeathed the assets of the deceased estate once administration was completed (residuary estate) to you for you to hold on trust as a testamentary trust because the will created a life interest for deceased's sibling and their parent (now deceased) and a remainder interest to a charity.
Given that the deceased's parent is deceased, the residuary estate is currently held on trust as follows:
1. To pay such of the income in any given financial year as you determine in your absolute and unfettered discretion to the deceased's sibling;
2. The balance of any unallocated income in any given financial year to be distributed to the charity;
3. To pay the deceased's sibling an amount not exceeding a certain percentage of the value of the capital of the residuary estate in any given financial year as you determine in your absolute and unfettered discretion; and
4. Upon the deceased's sibling's death, you as the trustees to stand possessed of the balance of the residuary estate upon trust for the charity for the sole purposes of a certain project of the charity with the receipt of the treasurer or proper officer of the charity being sufficient discharge of you as the trustees.
Presently the residuary estate does not hold any CGT assets, only cash remaining for distribution.
You, the deceased's sibling and the charity propose to execute a Deed of Arrangement (deed) under which all parties to the deed will agree to bring the testamentary trust to an end and distribute the residuary estate (cash) as follows:
1. You will pay the deceased's sibling a certain sum within fourteen days of the date of the deed in consideration for them renouncing/ending their rights and entitlements (life interest) under the terms of the will; and
2. You will pay to the charity after retaining such reasonable amount as may be required to meet any liabilities of the Estate, the balance of the residuary estate within fourteen days of the date of the deed; and then pay any remaining balance of the estate once its further and final administration is concluded in full and final satisfaction of the charity's rights and entitlements (remainder interest) under the will.
Recently the deceased's sibling's life interest in the deceased estate was a certain value.
The following documents are to be read with and form part of the scheme for the purposes of this private binding ruling:
• Draft Deed of Arrangement between you, the deceased's sibling and the charity, prepared by a legal firm;
• Assessment of Value of Interest of the deceased's sibling created by the deceased estate prepared by a Chartered and Forensic Accountant recently;
• The last will and testament of the deceased signed and dated.
Relevant legislative provisions
Income Tax Assessment Act, 1997 Section 108-5.
Reasons for decision
Question 1 and Question 2
Summary
You as trustees of the deceased estate do not own any CGT assets, only cash for distribution, therefore no CGT event can happen.
Detailed reasoning
The deceased's sibling owns a CGT asset, a life interest. The charity owns a CGT asset a remainder interest. You as trustees of the deceased estate do not own any CGT assets, only cash remaining for distribution.
With few exceptions, Australian currency is not a CGT asset under section 108-5 of the Income Tax Assessment Act 1997 and so the transfer of currency is not a CGT event.
The payment of cash by you as Trustees of the deceased estate to the deceased' sibling as a result of executing the deed of arrangement to end the deceased's sibling's life interest in the estate is not a CGT event for you. Similarly the payment of the residuary amount of cash to end the charity's remainder interest as a result of executing the deed of arrangement is not a CGT event for you either.
This means there are no CGT implications for you as Trustees of the deceased estate.
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