Edited version of your written advice

Authorisation Number: 1012896170564

Date of advice: 20 October 2015

Ruling

Subject: CGT Deceased Estate Pre-CGT assets Change of Trustee

Question

Did the assets of the estate of the deceased remain pre-CGT assets when one of two trustees, who was also the holder of a lifetime interest died, and the surviving trustee became the sole registered proprietor of the assets?

Answer

Yes

This ruling applies for the following periods:

1 July 2015 to 30 June 2016

1 July 2016 to 30 June 2017

The scheme commences on:

1 July 197X

Relevant facts and circumstances

The deceased died some 40 years ago. Their will established a testamentary trust with two trustees, Trustee 1 and Trustee 2.

Trustee 1 inherited a lifetime interest in the assets of the estate, and the residue was to be held on trust equally for the benefit of the deceased's children, one of which was Trustee 2. Trustee 1 and Trustee 2 were registered as joint proprietors of the assets of the estate in trust.

Trustee 1 died some 25 years ago. Trustee 2 became the sole registered proprietor of assets of the estate. Trustee 2 proposes to now sell the assets of the estate and distribute the proceeds to the residual beneficiaries.

The application for a private ruling and attached documents form part of the facts of the ruling.

Assumption

You will sell the assets of the trust within the time period covered by this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 128-10.

Income Tax Assessment Act 1997 Section 128-15.

Income Tax Assessment Act 1997 Section 149-10.

Reasons for decision

Summary

Because the deceased died before 20 September 1985, the assets of the estate remain pre-CGT assets, whether in the hands of the executor, the beneficiaries or the trustees of the testamentary trust. The mere change in trustee when one trustee died does not resettle the trust. Likewise, the end of a lifetime tenancy does not affect the pre-CGT status of the residual beneficiaries' interests.

Detailed reasoning

An asset is a pre-CGT asset if it was owned by an entity before the 20 September 1985. If you acquire an asset owned by a deceased person as their legal personal representative or beneficiary, you are taken to have acquired the asset on the date the person died. If that was before 20 September 1985, you disregard any capital gain or loss you make on the sale of the asset. The Commissioner has committed to treat the trustees of a testamentary trust as legal personal representatives. In your case, as the deceased died some 40 years ago, the assets of the testamentary trust are pre-CGT assets in the hands of the trustee.

A change of trustee does not in itself cause the termination of a trust. If there is merely a change of trustee, the trust properties and equitable duties of the trustee are assumed by the new trustee and nothing changes. In your case, the assets of the trust and the duties of the trustee remained the same after the death of Trustee 1. The assets remained held by the trust, for the benefit of the beneficiaries. There was no resettlement, and so the assets remained pre-CGT.

When a life interest owner dies, there are no CGT consequences for the owners of a remainder interest. The existing remainder interest is merely enlarged. Any capital gain or capital loss made by the life interest holder when their interest ends (with their death) is disregarded. The ending of Trustee 1's life interest will have no impact on the CGT status of the residual beneficiaries. The assets will remain pre-CGT.

When you sell the pre-CGT assets of the testamentary trust, you will be able to disregard any capital gains or capital losses that may be made.