Edited version of your written advice

Authorisation Number: 1051482920957

Date of advice: 12 February 2019

Ruling

Subject: Capital gains tax

Question

Will any capital gain made by the applicants as executors and trustees of the Estate from the transfer be disregarded under subsection 118-85(1) of the Income Tax Assessment Act 1997 on the basis that it is a transfer of a capital gains tax asset for no consideration to a special disability trust?

Answer

Yes.

Based on the information provided, the Special Disability Trust (SDT) meets the necessary requirements as outlined in the Social Security Act 1991.

As the conditions for the exemption contained in subsection 118-85 of the Income Tax Assessment Act 1997 will also be met, any capital gain made on the transfer of the Property from the Testamentary Trust to the SDT will be disregarded.

This ruling applies for the following period

Year ending 30 June 2019.

The scheme commences on

1 July 2018.

Relevant facts and circumstances

Person X acquired a property (the Property) after 20 September 1985.

Shortly after the Property was acquired it was occupied Person A, who was the child of Person X’s spouse (Person B).

Person X passed away in 20XX and the title of the Property was transferred into Person B’s name.

Person B (the Deceased) passed away after a number of years.

The following information was provided in the Deceased’s will:

● Person Y and Person Z to be appointed as the Executors and Trustees of the Deceased’s estate (collectively referred to as you);

● the Deceased’s furniture and other contents located at the Property was bequeathed to Person A if they survived the Deceased; and

● the Trustee to hold on trust on the terms contained in the Schedule the following for Person A if they survived the Deceased a specified amount of money and the Property.

The following information was provided in the Schedule of the Deceased’s will:

● Person A is the primary beneficiary;

● the secondary beneficiaries are the trustees of any Special Disability Trust of which Person A is the beneficiary;

● capital Beneficiaries are the Primary and Secondary Beneficiaries;

● the testamentary trust would run for a specified number of years from the date of the Deceased’s death;

● the Trustee must continue to allow Person A to live in and use the Residence where Person A is residing at the date of the Testator’s death;

● ‘Residence’ is defined as any of the following:

(a) the Property, being the dwelling that was the main residence of the spouse at the time of the Deceased’s passing;

(b) the Deceased’s Occupation Rights

a property or Occupation Rights acquired for Person A’s use with the proceeds of the sale of a previous Residence;

● Special Disability Trust has the same definition as provided in the Social Security Act 1991 (Cth) (SSA)and includes any other trust structure established for the benefit of an individual with a disability pursuant to any other Legislation;

● notwithstanding the vesting at perpetuity date clause, at any time up to and including the Perpetuity Date, the Trustee may Distribute all or part of the Fund to the Capital Beneficiaries in the shares (to the exclusion of any or all of them) as the Trustee determines provided that the Trustee must comply with all relevant requirements of the SSA when distributing to the trustees of any Special Disability Trust; and

● Fund includes the part of the Deceased estate being held by the Trustee on trust as outlined in the Schedule of the will, all other property and moneys acquired by the Trustee for the purposes of the Schedule, assets of the Fund including property and investments but excluding any Distributable income, and including any amount that is accumulated and added to capital in accordance with the Schedule.

In 20XX probate on the Deceased’s will was granted.

A request was made for the Department of Human Services (DHS) to assess Person A as a potential beneficiary of a Special Disability Trust (SDT).

The DHS sent a letter to Person Z advising that they had determined that Person A met the beneficiary criteria for a special disability trust under section 1209M of the Social Security Act 1991 (Cth) (SSA).

A Special Disability Trust (the SDT) was created by deed which included the following:

● trustees – Persons Y and Z;

● the SDT is being created for the primary purpose of making provisions for the care and accommodation of Person A, the principal beneficiary;

● the trustees of the SDT will hold the Trust Fund and income arising from the trust on trust during Person A’s lifetime solely for their benefit subject to the powers and obligations contained in the terms of the trust; and

● Person A will have a personal right of occupation for as long as they wish for their lifetime in relation to any real property contributed to the Trust Fund by a donor, or acquired by the trustee, in which Person A lives (Residence) and the Residence may be sold and proceeds used to acquire a substituted Residence.

DHS sent a letter to Person Z which advised that they had determined that the SDT met the requirements for an SDT within the meaning of the SSA from the date it was created.

The Property has been transferred from Person B’s name to the Deceased’s estate, being the Testamentary Trust.

The Property will be transferred from the Testamentary Trust to the SDT by way of an in-specie capital distribution for no consideration.

You will transfer the Property from the Testamentary Trust to the SDT during the period covered by this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Section 118-85

Income Tax Assessment Act 1997 Section 995-1

Social Security Act 1991