Edited version of private advice

Authorisation Number: 1052114900639

Date of advice: 26 May 2023

Ruling

Subject: Tax consequences of trustee selling properties

Question 1

Whether the taxable capital gain pursuant to CGT event A1 under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) by the trustees for the sale of X properties on the sale of those properties is nil.

Answer

Yes, the taxable capital gain on the sale of the Properties is nil because the capital proceeds from the disposal of the Properties by the Trustees is equal to the Properties' cost base (being the net proceeds payable to the beneficiaries of both estates with the authority of the executors). Further information is available in ATO Interpretative Decision ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1?

Question 2

Is the trustee in the capacity as trustees for sale of X properties taxable on the net income received from those properties for the year ended 30 June 20XX?

Answer

No, the Trustees are not assessable on the net income derived from the sale of the properties for the income year ending 30 June 20XX because the net income received in relation to the properties is assessable in the hands of the executors of both estates, who are beneficiaries deemed to be presently entitled to the income of the trust for sale.

Question 3

Is the trustee for the sale of the properties required to lodge a trust tax return for the income year ended 30 June 20XX?

Answer

No, the trustee is not required to lodge trust tax returns because the capital gain on the sale of the properties is nil. The trust for sale that derived rental income is a 'Transparent Trust' as defined in in Law Administration Practice Statement PS LA 2000/2 An exemption for the trustees of some trust estates from the requirement to furnish a tax return on behalf of the trust estate, so the Trustees are exempt from lodging a trust tax return. The Trustees are not required to lodge a tax return in relation to the trust for sale as it derived no income in the income year ended 30 June 20XX.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

By orders of the X Court of X dated XXXX, the Trustees were appointed co-trustees for sale (Trustees) of several properties on a statutory trust for sale, pursuant to state legislation

In respect of the trust for sale, the Trustees were granted specific duties and powers which included duties and powers to sell the Properties and to hold the net proceeds of sale in a controlled moneys account pending further order of the Court or as otherwise agreed by the Trustees as set out in the order dated XXXX.

Some of the properties have generated rental income between the time the Trustees were appointed and XXXX.

The net sale proceeds from the properties were initially held in the conveyancing solicitors' trust accounts for the benefit of the Trustees in accordance with the orders dated XXXX. The funds were transferred from the various conveyancing solicitors' trust accounts to XXXX, where most of the funds are currently in a controlled money account and a small proportion is in XXXX's trust account both held on behalf of the Trustees for the benefit of the executors.

In the case of some of the properties, the rental income received by the Trustees after completion of the sales, net of expenses incurred by the Trustees in relation to the Properties, is also held in XXXX's trust account for the benefit of the Trustees in accordance with the orders dated XXXX. The Trustees did not receive the income before completion - the managing agents sent the Trustees the net rental income post settlement.

No other income was derived by the Trustees for sale in that capacity in the income year ending XXXX.

One of the properties was an asset of the Estate of the Late XXXX who died on XXXX. Probate was granted on XXXX to two of the executors appointed under the will.

Under clause 4 of the deceased's will, it sets out that one of the properties be gifted to the X children of the deceased. Therefore, immediately before the creation of a trust for sale of the property in question, that property formed part of the deceased and that estate remained under administration.

The Trustees were appointed because two of the three executors commenced proceedings seeking revocation of the two grants of probate to remove the remaining executor as it was argued they were not attending to their executorial duties. The application is still ongoing so there are still three executors. The three executors could not agree to sell the Property so it was strongly suggested that the sales should be handled by someone other than the executors so the beneficiaries could receive their distributions. The orders for trustees for sale were made by consent of the three executors.

Any distribution of the funds by the Trustees will be in accordance with the rights of the beneficiaries to assets of the estate. So, the Trustees will make payments directly to the beneficiaries but only with the authority of the three executors and in accordance with the respective wills. That is, the executors who held the properties prior to the creation of the trusts for sale remain entitled to the net proceeds of the sale of the property and the net rents from the properties, but rather than the monies being distributed to the executors and then distributed by the executors to the beneficiaries, those monies will be distributed directly by the Trustees to the beneficiaries in satisfaction of the duties of the executors.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 99

Income Tax Assessment Act 1936 Section 99A

Income Tax Assessment Act 1936 Section 95A

Income Tax Assessment Act 1936 Section 161

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 112-20

Income Tax Assessment Act 1997 Section 116-20

Income Tax Assessment Act 1997 Section 214-15

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