Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051654659389
Date of advice: 6 April 2020
Ruling
Subject: Capital gains tax and deceased estates
Question 1
Is the trustee required to pay income tax at the individual income tax rates in the year ended 30 June 20XX where the beneficiaries were not presently entitled to any assets or income of the estate?
Answer
Yes. The net income of the trust earned during the administration period is taxed at the individual income tax rates of the Deceased as no beneficiary was presently entitled to any assets or income of the estate.
Question 2
Does the 50% CGT discount apply to reduce the capital gain that arose?
Answer
Yes. Providing the cost base of the shares and investments have not been calculated using the indexation method, and have been owned by the Deceased for a period of at least 12 months, then the 50% discount will be applicable.
Question 3
Does CGT event K3 apply to the estate?
Answer
No. CGT event K3 does not apply to the sale of shares as the CGT asset that was owned just before the deceased passed away did not pass to a beneficiary of the estate.
Question 4
Do the individual income tax rates apply to income of the estate for the year ended 30 June 2018?
Answer
Yes. The net income of the trust earned during the administration period is taxed at the individual income tax rates of the Deceased as no beneficiary was presently entitled to any assets or income of the estate.
This ruling applies for the following period
Year ended 30 June 20XX
The scheme commences on
1 July 20XX
Relevant facts and circumstances
The Deceased passed away (the Deceased).
The Deceased had a sibling.
The sibling with their spouse and two children (the two children) resided overseas for a long period of time.
The sibling is now also deceased.
The two children of the Deceased's sibling reside permanently overseas.
The two children are the residual beneficiaries of the Deceased's estate as stipulated in the Deceased's Will.
The two children were both born overseas and are Australian Citizens.
The Deceased had a substantial portfolio of investments.
The trustees of the Deceased's estate submitted the Deceased's estates first tax return for the 20XX income year.
Approximately half a year after the Deceased passed away probate was granted.
A short time later the trustees of the Deceased's estate made the decision to sell and sold the assets of the Deceased's estate.
All assets of the Deceased's estate were purchased by the Deceased after September 1985 and were held for more than 12 months.
The taxable income of the Deceased's estate includes the following:
· Trust income
· Interest income
· Dividend income
For the 20XX income year the Deceased's estate incurred a nominal capital gain of $X,XXX,XXX (after applying current year capital losses).
The trustees of the Deceased's estate applied the 50% discount against the nominal gain, making the taxable capital gain of approx. $X,XXX,XXX.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 98
Income Tax Assessment Act 1997 Section 99
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 115-5