Edited version of your written advice

Authorisation Number: 1012854230238

Date of advice: 5 August 2015

Ruling

Subject: Bare trusts

Question 1

Will you be solely assessable for any income in relation to the shares?

Answer

Yes.

Question 2

Will you be solely assessable for any capital gain in relation to the shares?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You were a beneficiary of shares from a deceased estate.

The executor of the estate incorrectly transferred the shares into the joint names of you and your spouse.

There was no arrangement in place for your spouse to receive half of the shares.

You received legal advice that a bare trust has been created with yourself as sole beneficiary.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 6-10.

Income Tax Assessment Act 1997 Section 100-20.

Income Tax Assessment Act 1997 Section 106-50.

Reasons for decision

A bare trust is one where the trustee has no active duties to perform. Gummow J said in Herdegen v. Federal Commissioner of Taxation (1988) 84 ALR 271 at 281:

Today the usually accepted meaning of 'bare' trust is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party.

Under a bare trust the beneficiary is entitled to possession of the trust assets and the trustees must act in accordance with the direction of the beneficiary. Ultimately the trustees must deal with the property as directed by the beneficiary.

You were a stated beneficiary of a deceased estate. The executor of the deceased estate incorrectly transferred the shares into the joint names of you and your spouse. There was no kind of arrangement in place that your spouse receive half of the shares.

Your spouse holds the legal title to the shares for the benefit of yourself, as beneficiary. Their role as trustee is to hold the shares and deal with them at your direction. 

It is accepted that the arrangement between you and your spouse amounts to a bare trust arrangement. It is considered that your spouse does not hold any beneficial ownership in the shares and merely holds the shares on your behalf.

Absolutely entitled

Where a beneficiary is absolutely entitled to an asset held by a trustee section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that any 'act done by the trustee in relation to the asset' is treated as if it had been an act of the person absolutely entitled. As a result if the act triggers a CGT event, then the taxpayer will be the person subject to any CGT liability rather than the trustee.

A beneficiary is absolutely entitled to an asset of a trust as against the trustee for the purposes of section 106-50 of the ITAA 1997 if the beneficiary is:

• absolutely entitled in equity to the asset and thus has a vested, indefeasible and absolute interest in the asset; and

• able to direct the trustee how to deal with the asset.

In this case, you are the sole beneficiary and you have a vested, indefeasible and absolute interest in the shares. Consequently, you are absolutely entitled to the shares as against your spouse. Therefore, you are solely assessable on any assessable income or capital gains that are derived from the shares.