Edited version of private advice

Authorisation Number: 1051766641477

Date of advice: 13 October 2020

Ruling

Subject: Capital gains tax - fixed trust - deceased estate

Question 1

Is the deceased estate a fixed trust?

Answer

Yes.Section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 provides that a trust is a 'fixed trust' if persons have fixed entitlements to all of the income and capital of the trust. Subsection 995-1(1) of the Income Tax Assessment Act 1997 provides that a trust is a fixed trust if entities have fixed entitlements to all of the income and capital of the trust.

In this case, there are no contingencies that exist by which the remaining beneficiary could lose their interest and they are entitled to a share of the residuary of the estate.

Therefore, the beneficiary has a vested and indefeasible interest in the income and capital of the estate. As such the estate is a fixed trust.

Question 2

Can the non-resident beneficiary and the trustee disregard the capital gain that is made as a result of CGT event E5 happening to the CGT post death assets of the trust?

Answer

Yes. Given the estate is a fixed trust the non-resident beneficiary satisfies the conditions for CGT exemption in subsection 855-40(2) of the ITAA 1997 and can disregard the capital gain made in respect of their interest in the trust. As such, to the extent the amount relates to the capital gain is disregarded by the non-resident beneficiary under subsection 855-40(2) of the ITAA 1997, the trustee is not liable to pay tax in respect of that amount under subsection 855-40(3) of the ITAA 1997.

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 was a resident of Australia for taxation purposes and died 20XX. The deceased left a will.

Executors were appointed for the deceased's estate.

Probate was granted 20XX.

The deceased's will created specific instructions on the distribution of the share of the estate, namely for when the overseas beneficiary survives the deceased and attains the age of XX years.

At the time of the deceased's death the overseas beneficiary was not XX years of age.

A distribution was made to a surviving remainderman for their share of entitlement in 20XX.

The overseas beneficiary turned XX years in 20XX and their interest vested on this date.

The overseas beneficiary is a non-resident for Australian Taxation purposes.

There are post-death assets in the estate which are non-taxable Australian property.

At the vesting date there is a potential CGT event, resulting with a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 95A

Income Tax Assessment Act 1936 section 272-5 of Schedule 2F

Income Tax Assessment Act 1936 subsection 272-5(1) of Schedule 2F

Income Tax Assessment Act 1936 subsection 272-5(3) of Schedule 2F

Income Tax Assessment Act 1936 section 272-65 of Schedule 2F

Income Tax Assessment Act 1997 section 104-75

Income Tax Assessment Act 1997 section 855-15

Income Tax Assessment Act 1997 section 855-20

Income Tax Assessment Act 1997 section 855-25

Income Tax Assessment Act 1997 section 855-40

Income Tax Assessment Act 1997 subsection 855-40(2)

Income Tax Assessment Act 1997 subsection 855-40(2)(a)

Income Tax Assessment Act 1997 subsection 855-40(2)(b)(i)

Income Tax Assessment Act 1997 subsection 855-40(2)(c)(i)

Income Tax Assessment Act 1997 subsection 995-1(1)