Edited version of private advice

Authorisation Number: 1052502260773

Date of advice: 24 February 2026

Ruling

Subject: Capital gains tax

Question 1

Will any capital gain be disregarded on the transfer of X percentage of the property from the Z Testamentary Trust to Individual Z?

Answer 1

Yes.

Question 2

Will any capital gain be disregarded on the transfer of the remaining percentage of the property from the Z Testamentary Trust to Individual Z?

Answer 2

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased died a few years go.

The deceased's will provided that the property was left to their children in the proportions of X percentage to the Trustee for the Z Testamentary Trust and the remaining percentage to the Trustee for the Y Testamentary Trust.

As the children did not consider it feasible for the property to be held by all of them, the Trustee for the Z Testamentary Trust purchased the remaining percentage of the property from the Trustee for the Y Testamentary Trust.

The parties involved came to an agreement on the market value of the property at the deceased's date of death.

The Trustee for the Z Testamentary Trust currently owns 100% of the property.

The Trustee for the Z Testamentary Trust will transfer 100% of the property to Individual Z.

The transfer will be 100% exempt from stamp duty per the relevant state government revenue office.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 128-10

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with the capital gains tax (CGT) consequences that arise from a deceased estate. Under section 128-10 of the ITAA 1997, when a person dies, any capital gain or capital loss that results from a CGT asset the person owned just before dying devolving to their legal personal representative or that pass to a beneficiary is disregarded.

The term 'legal personal representative' (LPR) is defined in subsection 995-1(1) ITAA 1997 and relevantly includes, 'an executor or administrator of an estate of an individual who has died ...'

For Australian tax purposes, the Commissioner treats a LPR such as an executor or administrator as a trustee and will treat the deceased estate as a trust estate.

Any CGT consequences are deferred until there is a subsequent disposal by the LPR or beneficiary.

Practice Statement Law Administration 2003/12: Capital gains tax treatment of the trustee of a testamentary trust (PSLA 2003/12) confirms the Commissioner's longstanding administrative practice of not recognising any taxing point in relation to assets owned by a deceased person until they cease to be owned by the beneficiaries in accordance with the will (unless there is an earlier disposal by the legal personal representative or testamentary trustee to a third party or CGT event K3 applies).

Subsection 128-15(3) of the ITAA 1997 states that any capital gain or loss the legal personal representative of a deceased estate makes if an asset 'passes' to a beneficiary in the estate is disregarded.

Section 128-20 of the ITAA 1997 lists the ways in which an asset is considered to pass to a beneficiary of an estate. The most common of the ways mentioned is where the beneficiary becomes the owner of the asset under the will.

In this case the will provided that the property was to be transferred in the proportions of X percentage to the Trustee for the Z Testamentary and the remaining percentage to the Trustee for the Y Testamentary Trust.

Subsection 128-15(3) will apply to the Trustee for the Z Testamentary Trust to exempt the transfer of the X percentage as it 'passes' to Individual Z in accordance with the will.

The percentage purchased by the Trustee for the Z Testamentary Trust from the Trustee for the Y Testamentary Trust will be subject to CGT when it is transferred to Individual Z as that percentage did not pass to them under their parent's will.

The CGT legislation does not provide the Commissioner with any discretion to exempt the ownership share of the property that was purchased from the other testamentary trust.

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