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Edited version of your written advice
Authorisation Number: 1013008874929
Date of advice: 10 May 2016
Ruling
Subject: Capital gains tax - deceased estate
Question 1
Can a capital gain or loss be disregarded when an asset is passed from a testamentary trust, which was created under the will, to a beneficiary?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 20ZZ
The scheme commences on:
1 July 20YY
Relevant facts and circumstances
The deceased died in the 20WW-XX financial year.
The spouse of the deceased was made executor of the estate.
Under the will:
• the spouse was to hold a property on trust for their children,
• once the children had reached a certain age, the spouse, being the trustee of the testamentary trust, would transfer each child a share in the property.
• the spouse had the right to either occupy the property or rent the property out until the property was transferred to their children,
• should the property receive any rental income the spouse was entitled to that income until the property was transferred to their children.
After the deceased's death the title of property was inadvertently transferred solely into the name of the spouse.
The spouse rented the property out and declared all relevant rental income and deductions in their own personal tax return, up until the property was transferred to the children.
Once both children reached the age specified in the will, the spouse, being the trustee of the testamentary trust, transferred each of the children their share in the property.
The transfer occurred in the 20YY-ZZ financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 128 and
Income Tax Assessment Act 1997 subsection 128-15(3).
Reasons for decision
Subsection 128-15(3) of the Income Tax Assessment Act 1997 (ITAA 1997) states that any capital gain or capital loss a legal personal representative makes when an asset passes to a beneficiary is disregarded. Because a 'legal personal representative' does not include a testamentary trustee that provision would not apply to a transfer of an asset from a testamentary trust to a beneficiary of that trust.
However the Commissioner has an administrative practice of treating the trustee of a testamentary trust in the same way that a legal personal representative is treated for the purposes of Division 128 of the ITAA: see Law Administration Practice Statement PSLA 2003/12.
Therefore, any capital gain or loss made on the transfer of the property from you as trustee of the testamentary trust to the beneficiaries is disregarded.