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Edited version of private advice
Authorisation Number: 1051942120899
Date of advice: 20 January 2022
Ruling
Subject: CGT - trust non-resident beneficiary
Question 1
Is the Estate a 'fixed trust' trust under section 272-65 in Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) for the purpose of section 855-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. Section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) provides that a trust is a 'fixed trust' if persons have fixed entitlements to all of the income and capital of the trust.
In this case, the residuary beneficiary has a vested interest in the income and capital of the Estate. There is no condition in the Will, by which the residuary beneficiary could lose their interest in the Estate. The interest of the residuary beneficiary in the income and capital of the Estate is therefore vested and indefeasible, and as such, a fixed entitlement exists in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936.
As the residuary beneficiary has a fixed entitlement to all the income and capital, the Estate is a fixed trust under section 272-65 of Schedule 2F of the ITAA 1936 and a fixed trust for the purposes of section 855-40 of the ITAA 1997.
Further information is available in ATO ID 2006/279 Income tax: Trust losses - fixed entitlement - beneficiaries of a deceased estate.
Question 2
Are the executors liable to income tax on any capital gains that arose when shares that were not taxable Australian property of the deceased were disposed of and will be paid to a non-resident beneficiary?
Answer
No. As the Estate is a fixed trust, the non-resident residuary beneficiary satisfies the conditions for the exemption in subsection 855-40(2) of the ITAA 1997 and can disregard the capital gains made in respect of their interest in the Estate. To the extent the amount relates to a capital gain that is disregarded by the non-resident residuary beneficiary, the Executor is not liable to pay tax in respect of that amount under subsection 855-40(3) of the ITAA 1997.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased died on XX/XX/XXXX leaving a Will. Probate was granted to the Executor on XX/XX/XXXX.
Under the Will, the residuary of the Estate was left to Person A, who is not a resident for Australian taxation purposes. They are presently entitled to income including capital gains on the Estate.
In the course of administering the Estate, the Executor has sold shares that are not taxable Australian property for the purposes of Division 855 of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 272-5 of Schedule 2F
Income Tax Assessment Act 1936 Section 272-65 of Schedule 2F
Income Tax Assessment Act 1997 Subdivision 855-A
Income Tax Assessment Act 1997 Section 855-40
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