Edited version of private advice

Authorisation Number: 1052011538042

Date of advice: 3 August 2022

Ruling

Subject: Testamentary trusts

Question 1

Is a trust created under clause X.X or clause X.X of the Will of the deceased of which Q, W, Y, and Z will be the trustee and primary beneficiary, a trust that resulted from a will for the purposes of subparagraphs 99A(2)(a)(i) and 102AG(2)(a)(i) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Subparagraphs 99A(2)(a)(i) and 102AG(2)(a)(i) of the ITAA 1936 apply to 'a trust estate that resulted from a will'. We consider that a trust created pursuant to clause X.X or clause X.X of the Will is 'a trust estate that resulted from a will' and therefore is a trust to which those subparagraphs apply.

Question 2

If an asset that the deceased owned at death passes to a beneficiary of a trust created under clause X.X or clause X.X of the Will, does that asset pass to the beneficiary under a will for the purposes of section 128-20 of the Income Tax Assessment Act 1997 (ITAA 1997) having regard to the way that the provision is administered by Law Administration Practice Statement PSLA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust?

Answer

Yes.

PSLA 2003/12 confirms the Commissioner of Taxation's longstanding administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative of a deceased estate for capital gains tax purposes. As a trust created under clause X.X or clause X.X of the Will is a testamentary trust, an asset that the deceased owned at death that passes to a beneficiary of such a trust is considered to pass to a beneficiary under a will for the purposes of section 128-20 of the ITAA 1997.

Question 3

If property is held on trust pursuant to clauses X.X and X.X for a relevant beneficiary, does the Commissioner accept that the deceased's Will resulted in only one trust for the beneficiary?

Answer

Yes.

We accept that under the terms of the Will, it is possible for a single testamentary trust to be created for each relevant beneficiary.

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 died leaving the Will by which they appointed particular individuals as joint executors.

Pursuant to clauses X.X and X.X of the Will the executors may, with the consent of a relevant beneficiary, appropriate the share of the estate to which the beneficiary is otherwise entitled (pursuant to those clauses) to a testamentary trust on the terms set out in Part X of the Will.

The relevant beneficiaries of the Will include Q, W, Y, and Z.

Q, W, Y, and Z as beneficiaries will provide their written consent to their respective entitlements under clauses X.X and X.X of the Deceased's Will being appropriated to a testamentary trust which they individually control and of which they are the Primary Beneficiary on the terms set out in Part X of the Will.

Under the terms of Part X of the Will, Q, W, Y, and Z may each be the initial trustee of their respective trusts of which they are the Primary Beneficiary.

The Deceased was a resident of Australia for tax purposes when they died and Q, W, Y, and Z are residents of Australia for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1936 subparagraph 99A(2)(a)(i)

Income Tax Assessment Act 1936 subparagraph 102AG(2)(a)(i)

Income Tax Assessment Act 1997 section 128-20