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Edited version of private advice
Authorisation Number: 1051936168498
Date of advice: 7 January 2022
Ruling
Subject: CGT - non-resident beneficiary
Question 1
Is the Estate a 'fixed trust' for the purposes of section 855-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. Section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 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 272-5(1) of Schedule 2F to the ITAA 1936 provides that if, under a trust instrument, a beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, the beneficiary has a fixed entitlement to that share of the income or capital.
In your circumstances, the residuary beneficiary has a vested interest in the income and capital of the Estate. There is no condition in the trust instrument, the Will, by which the residuary beneficiary could lose his interest in the Estate. The interest of the residuary beneficiary in the income and capital of the Estate is therefore vested and indefeasible, and as such, a fixed entitlement exists in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936.
As the residuary beneficiary has a fixed entitlement to all the income and capital of the Estate, the trust constituted by the Estate is a fixed trust under section 272-65 of Schedule 2F of the ITAA 1936 and a fixed trust for the purposes of section 855-40 of the ITAA 1997.
Question 2
Is the Executor of the Estate liable to pay income tax on any capital gains arising from the sale of shares or other CGT assets of the Estate paid to the foreign resident beneficiary?
Answer
No. As the Estate is a fixed trust, the non-resident residuary beneficiary satisfies the conditions for the exemption in subsection 855-40(2) of the ITAA 1997 and can disregard the capital gains made in respect of his interest in the Estate. To the extent the amount relates to a capital gain that is disregarded by the non-resident residuary beneficiary, the Executor 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 ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased died on XX/XX/XXXX leaving a Will. Probate was granted to the Executor on XX/XX/XXXX.
Under the Will, the residuary of the Estate was left to Person A, who is not a resident for Australian taxation purposes.
In the course of administering the Estate, the Executor has sold assets that are not taxable Australian property for the purposes of Division 855 of the ITAA 1997.
The Executor intends to pay the proceeds of the sale of the assets (including capital gains) to Person A as the residuary beneficiary.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 272-5 of Schedule 2F
Income Tax Assessment Act 1936 Section 272-65 of Schedule 2F
Income Tax Assessment Act 1997 Subdivision 855-A
Income Tax Assessment Act 1997 Section 855-40
Income Tax Assessment Act 1997 Subsection 995-1(1)