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Edited version of your written advice
Authorisation Number: 1013001706660
Date of advice: 21 April 2016
Ruling
Subject: Capital gains tax
Question and answer
Is the Trustee of the deceased estate able to make an election under Section 115-230 of the Income Tax Assessment Act 1997 to be taxed on the capital gain on the disposal of the estates property?
Yes.
Is the CGT discount available when calculating the net capital gain?
Yes.
Will any of the beneficiaries be taxed on any part of the estates capital distributed after X XXXX 2016?
No.
This ruling applies for the following periods:
Year ending 30 June 2016
The scheme commenced on:
1 July 2015
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The testamentary Trust is a resident of Australia.
The deceased died a number of years ago.
The estate property comprises the deceased's residence which was purchased by the deceased prior to 20 September 1985.
The property has been rented out since the deceased died by the estate.
The trustee of the estate has entered into a contract to sell the property.
A capital gain will be realised on the disposal of the property.
There have been no distributions made in anticipation of the capital proceeds from the sale of the property to any of the beneficiaries.
Once the sale has been settled the proceeds will be held by the trustee of the estate and no capital gains from the proceeds of the sale will be distributed any beneficiary prior to X XXXX 2016.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 115-230.
Reasons for decision
Under section 115-230 of the Income Tax Assessment Act 1997 (ITAA 1997) the trustee of a resident testamentary trust can make a choice in respect of the capital gains of the trust. The trustee will be assessed on the beneficiary's share under section 99A or (at the Commissioner's discretion) 99 of the Income Tax Assessment Act 1936 (ITAA1936).
The trustee who chooses to be assessed on the capital gains which would otherwise be assessed to an income beneficiary (or the trustee on the income beneficiary) can make the choice if, under the terms of the trust, the income beneficiary cannot benefit from the capital gains. This means that the tax on the capital gains is in effect borne by the capital beneficiaries of the trust who will ultimately benefit from the capital gains.
A trustee can only make a choice under this section in relation to a trust estate:
(a) that results from:
(i) a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil; or
(ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate; and
(b) that is, in the income year in respect of which the choice is made, a resident trust estate within the meaning of Division 6 of Part III of the ITAA 1936.
The trustee can make a choice in relation to a beneficiary who:
• does not have a vested and indefeasible interest in trust property representing the gain under the terms of the trust, and
• has not been paid, or had applied to them, the benefit of that property.
The trustee is required to make any choice within two months from the end of the income year to which the choice relates. The Commissioner may allow further time for the trustee to make a choice in special circumstances.
The Trust meets all the conditions under Section 115-230 of the ITAA 1997 and the Trust can be assessed on the capital gain.
Discount Capital Gain
A discount capital gain is allowable under subdivision 115-A of the ITAA 1997, providing that:-
a). the capital gain is made by:
(i) an individual; or
(ii) a complying superannuation entity; or
(iii) a trust (section 115-10). and
b). the capital gain resulted from a CGT event which occurred after 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999 (section115-15); and
c). the capital gain must result from a CGT event happening to a CGT asset that was acquired by the entity making the capital gain at least 12 months before the CGT event (subsection 115-25).
The Trust is able to apply the 50% discount when calculating the capital gain when the property is sold.
As the trustee is assessable on the Capital Gain and the eventual distribution to the beneficiaries is of corpus of the deceased estate the beneficiaries will not be assessed on the distribution.