Edited version of private advice

Authorisation Number: 1051641753847

Date of advice: 11 March 2020

Ruling

Subject: CGT-main residence-trust-deceased estate

Question

Can the Trustee of the Estate disregard any capital gain made on the sale of Property 2?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

The Deceased died on XXXX. Their will appointed as their Executors and Trustees their spouse, Child A and Child B (hereafter referred to as The Trustees). Probate was granted to all three on XXXX.

The Deceased directed their Trustees to permit the deceased's spouse and Child A to reside in The Property during their lifetimes, or for so long as they wished to reside therein with remainder to Child A and Child B equally.

In XXXX the Property was resumed by a government department. In XXXX, Child A and Child B incorporated Company A as a family company.

On XXXX, Company A purchased Property 2 on behalf of the Estate.

Property 2 was purchased as a substitute residence for the deceased's spouse and Child A in place of the resumed property (The Property). It was intended that the Deceased's spouse and Child A would reside there in accordance with the Right of Residence created by the Will of the Deceased.

By deed dated XXXX, Child A, Child B, the Deceased's spouse and Company A entered a Deed of Appointment and Variation of Trust. By the terms of the deed, among other things, Company A became an additional trustee of the trust created by the Deceased's will.

The Deceased's spouse resided at Property 2 until their death in XXXX. Child A resided in the house with the Deceased's spouse and continues to reside there.

Following the Deceased's spouse's death, court proceedings were commenced by Child A. The relevant orders were made on XXXX as below:

·        that Child A has the right to reside at Property 2 for the term of their life or for so long as they may wish to reside there

·        that Child A, Child B and Company A be removed as Trustees for the Estate.

·        that XXXX of the firm of XXXX Solicitors be appointed as Trustee for the Estate.

·        that the land described in the certificate of title for Property 2 therein described should vest in XXXX as Trustee for the Estate.

·        that the property being Property 2 be sold by XXXX as Trustee subject to the right of residence of Child A.

XXXX, as Trustee, subsequently obtained a valuation of Property 2 for the purpose of the sale. This valued Property 2 subject to the right of residence as approximately half the unencumbered value (without the right of residence)

Child A thereafter offered to purchase Property 2, subject to their right of residence, for an amount of $XXXX which was an amount higher than the independent valuation of the property.

By a summons filed on XXXX and amended on XXXX, XXXX (as Trustee) applied to the Court for directions in management of the Estate

The relevant orders made following this were that:

·        XXXX, as Trustee, was at liberty to sell the property by private treaty, to the defendants Child A and Child B jointly or severally (subject to Child A's right of residence).

·        In the absence of any higher offer for purchase of the property, that XXXX (as Trustee) may sell the property for $XXXX to Child A.

On XXXX, XXXX as Trustee, was authorised to sell Child A Property 2 for the price of $XXXX unless a higher offer was forthcoming. No higher offer was forthcoming and accordingly, XXXX, as Trustee, now intends to sell Property 2 to Child A for $XXXX. Child A maintains their right of residence.

Relevant legislative provisions

Income Tax Assessment Act section 104-10(1)

Income Tax Assessment Act section 104-10(4)

Income Tax Assessment Act section 118-210(1)

Income Tax Assessment Act section 118-210(3)

Reasons for decision

CGT Event A1

CGT event A1 occurs if you dispose of a CGT asset. You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. However, where the CGT event A1 involves a dwelling acquired by a trustee under a will, the trustee may be able to disregard any capital gains made in accordance with section 118-210(1) of the ITAA 1997.

Trustee acquiring dwelling under will

A trustee acquires an ownership interest in a dwelling "under the will" of the deceased if the interest is acquired in accordance with the terms of the will or under the authority of the will.

Property 2 was acquired by Company A in accordance with a Deed of Appointment and Variation of Trust made on XXXX. Company A is one of the Trustees for the Estate. The Deed of Appointment and Variation of Trust was made under the authority of the Will of the Deceased.

In XXXX, Company A was removed as a Trustee for the Estate. At that time, you were appointed as Trustee for the Estate. It is in this capacity as Trustee that you seek to disregard any capital gains made on the sale of Property 2.

Section 118-210 (3) of the ITAA 1997 states that if

(a)   You receive money or property for the CGT event happening; and

(b)   The dwelling was the main residence of the individual from the time you acquired the interest until the time of the event;

you do not make a capital gain or capital loss from the CGT event

Property 2 has been Child A's main residence since the time the Trustee acquired Property 2. The Trustee will receive an amount of $XXXX upon the transfer of the property to Child A. These two factors satisfy the requirements in section 118-210 (3) of the ITAA 1997.Therefore, the Trustee is able to disregard any capital gains made on the sale of Property 2.