Edited version of private advice

Authorisation Number: 1052365614400

Date of advice: 27 June 2025

Ruling

Subject: Deceased estate - legal personal representative CGT 50% discount

Question 1

Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the Trustee on income that no beneficiary is presently entitled to under section 99 of the ITAA 1936?

Answer

Yes.

Question 2

Will the Trustee be entitled to apply the 50% capital gains tax (CGT) discount to the capital gain made on the sale of the estate assets under Division 115 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

30 June 202X

The scheme commenced on:

XX XX 202X

Relevant facts and circumstances

Person A (the "deceased") acquired their home and land (the "Property") before 20 September 1985.

The deceased's date of death was xx xxxx 20XX.

The daughter of the deceased, "the Trustee", was appointed Executor and Trustee in accordance with the deceased's Will at Clause 2 and is the Legal Personal Representative (LPR).

The Property was transferred to the Trustee on the date of death of the deceased.

The Trustee is seeking advice on the treatment of the capital gain on sale of the Property and access to the 50% discount.

A family provision claim initiated by the Trustee's sister was set for mediation on xx xxxx 20XX and the Trustee wanted to be certain of the potential tax liability of the Property when sold.

The sale of the Property occurred prior to mediation being entered into.

The Trustee engaged Tax Lawyers, XXX XXXX, to provide advice, consisting of the following:

As the deceased acquired the Property prior to introduction of the CGT regime that took effect from 20 September 1985, then the Trustee will be taken to have acquired the Property for its market value on xx xxxx 20XX, the date of the deceased's death

The Property was sold by the Trustee in their capacity as LPR of the estate rather than in their own personal capacity as beneficiary

The Trustee is taken to be the owner of the Property for CGT purposes prior to its sale

The increase in market value from date of death of the deceased to the time of sale should represent a taxable capital gain, which is taxable to the Trustee as LPR given that the sale contract was entered into before the Family Provision Claim was settled, and that a court order had not been made to the effect that the Trustee was entitled to the Property in accordance with the terms of the deceased's Will

The capital gain will be calculated as the sale price ex-GST (capital proceeds) less the cost base of the Property

Relevant legislative provisions

Income Tax Assessment Act 1997 section 115-A

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1936subsection 99A(2)

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

This is to explain how we reached our decision. This is not part of the private ruling.

Question 1

Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the Trustee on income that no beneficiary is presently entitled to under section 99 of the ITAA 1936?

Answer

Yes.

Summary

Sections 99 and 99A of the ITAA 1936 apply to assess the Trustee on income to which no beneficiary is presently entitled, which is retained or accumulated by the Trustee. In considering these sections, we must first consider section 99A.

Section 99A applies in relation to all trusts unless:

   - the trust is a deceased estate; subparagraph 99A(2)(a)(i) and (ii)

   - the trust is a bankrupt estate; paragraphs 99A(2)(b) and (c)

   - the trust is a trust that consists of property referred to in paragraph 102AG(2)(c),

Subsection 99A(2) of the ITAA 1936 outlines the circumstances when the Commissioner may apply his discretion for section 99A not to apply where he is of the opinion that it would be unreasonable for section 99A to apply. The relevant part of subsection 99A(2) states that the discretion may be exercised where a trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil.

Consequently, the favourable exercise of the Commissioner's discretion under subsection 99A(2) means the highest rate of income tax does not apply to trust estates resulting from a will, codicil, etc. These include both the estate of a deceased person and 'testamentary' trusts established pursuant to the terms of a will.

If no part of the net income is distributed to beneficiaries, and section 99A is considered not to apply, then the Trustee is assessed under section 99 of the ITAA 1936 as if the income were that of an individual.

In forming the opinion for the purposes of subsection 99A (2) of the ITAA 1936 the Commissioner is required to have regard to the matter in subsections 99A(3) of the ITAA 1936 as follows:

The Commissioner shall have regard to the circumstances in which, and the conditions if any, upon which at any time, property (including money) was acquired by or lent to the trust estate, income was derived by the trust estate, benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate, whether or not the rights or privileges have been exercised;

   • If a person, who has at any time, directly or indirectly:

      - Transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or

      - Conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to the property of the trust estate whether or not the right or privilege has been exercised;

   • has not any time, directly or indirectly:

      - Transferred or lent any property (including money) to, or conferred any benefits on, another trust estate; or

      - Conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to the property of another trust estate, whether or not the right or privilege has been exercised;

   • The Commissioner shall have regard to that fact, and

   • The Commissioner shall have regard to such other matters, if any, as he or she thinks fit.

In determining the weight to be given to the matters described in subsection 99A(3), Windeyer J has stated in Giris Pty Ltd v FCT (1969) 119 CLR 365; 69 ATC 4015; (1969) 1 ATR 3 that:

The Commissioner is to ask himself whether it would be unreasonable that section 99A of the ITAA should apply to any particular trust estate .... That purpose I take it is to enable the Commissioner to keep sec 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose.

Application to your circumstances

In your case, we have taken the following into consideration when determining whether the Commissioner's discretion will be exercised:

The Trust consists of property that was transferred to the Trustee directly as a result of the death of a person and the Property was the main residence of the deceased just before their death and not used by them to produce income at that time

The Property sale settled many years after the deceased's death

The delay in disposal of the Property was due to a family provision claim initiated by the Trustee's sister which was set for mediation on xx xxxx 20XX and the Trustee wanted to be certain of the potential tax liability of the Property when sold, given the Property sold more than two years following date of death of the deceased.

You, the client's Tax Agent, advised that the assets held by the Trustee consist only of property vested in the Trustee under the terms of the Will and proceeds from the sale of the Property.

You also advised that assets held by the Trustee do not consist of investments in private companies or private trusts, other assets acquired at non-arm's length value or loans related to related parties.

The Trustee is not avoiding tax by exercising the powers available to them under the terms of the Trust Deed.

Having regard to the above matters, and the legislated purpose of section 99A to prevent the use of trusts for tax avoidance, the Commissioner is of the opinion that it is unreasonable for section 99A to apply to the Trustee in the ruling period, the income year ended 30 June 2025.

Question 2

Will the Trustee be entitled to apply the 50% capital gains tax (CGT) discount to the capital gain made on the sale of the Property under Division 115 of the ITAA 1997?

Answer

Yes.

Summary

As the Trustee will be assessed under section 99 of the ITAA 1936, the Trustee is entitled to the 50% Capital Gains Tax (CGT) discount on the sale of the Property provided the assets were held for a minimum of 12 months.

Detailed reasoning

Under section 115-5 of the Income Tax Assessment Act 1997(ITAA 1997) you make a discount capital gain if the following requirements are satisfied:

   • Section 115.1 - you are an individual, a trust, a complying superannuation entity or a life insurance company in relation to a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation asset

   • Section 115.15 - the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999

   • Section 115.20 - you did not choose to use the indexation method (must not have an indexed cost base), and

   • Section 115.25 - you acquired the asset at least 12 months before the CGT event

   • Section 128-15 of the ITAA 1997 outlines that the holding period of an asset includes the time it was held by the deceased. This is important for determining capital gains tax (CGT) implications when the asset is eventually sold by the estate or the beneficiaries. This means that when calculating the 12-month holding period required to qualify for the 50% capital gains tax (CGT) discount, you can count the period during which the deceased owned the asset.

When assessed under section 99 of the ITAA 1936 as opposed to section 99A of the ITAA 1936, a trustee will still be able to have the benefit of the CGT discount (section 115-222(2) of the ITAA 1997).

Application to your circumstances

The Trustee of the deceased estate disposed of the Property on xx XXXX 20XX. As the Property was held by the deceased for a minimum of 12 months, the Trustee will be able to discount the capital gain made.

Under the discount method you reduce your capital gain by the discount percentage. For individuals, the discount percentage is 50%. However, you can reduce the capital gain only after you have applied all the capital losses for the year and any unapplied net capital losses from earlier years.

The discount capital gain is included in the Trustee's assessable income and taxed at the marginal rate applicable to that income for that year.

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