Edited version of private advice

Authorisation Number: 1052046597511

Date of advice: 18 October 2022

Ruling

Subject: CGT legal v beneficial ownership

Question

Is capital gains tax (CGT) applicable for you, as trustee, on the two managed fund accounts?

Answer

No.

You became the legal owner of the two managed fund accounts when you, as trustee of your father's estate, opened the two accounts to hold money for your children, Person A and Person B, until they each reach the age of XX, as per the terms of your father's will.

You did not have any expectation of having any elements of beneficial ownership during your ownership period. You did not fund either of the two accounts and there is no intention for you to benefit from the accounts. Any distribution payments are reinvested and upon Person A and Person B reaching the age of XX the relevant account is transferred into their name.

Although you had legal ownership of the managed fund account, and any assets the money is invested in, it was never intended for you to have any beneficial ownership. It can be reasonably concluded that any CGT event arising in relation to the two managed fund accounts will not result in a CGT event for you when your legal ownership ends. Rather, the CGT event will happen to Person A or Person B respectively as they are considered the beneficial owner of the relevant account, under sections 102-20 and 104-10 of the Income Tax Assessment Act 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In mid 20XX your parent died.

Under the deceased's will you were appointed as one of multiple trustees.

Under the deceased's will your two children, Person A and Person B, were beneficiaries of a portion of the deceased's estate which you, as trustee, were instructed to hold on trust until they reach the age of XX.

In 20XX, you set up two separate managed fund accounts with Financial Institution A to hold the money for Person A and Person B until they reach the age of XX.

Account 1 was in your name but notated with Person A.

Account 2 was in your name but notated with Person B.

You provided an account summary statement for each account. The distribution instructions on both statements stipulate that the distribution payment method will be 'reinvest'.

In late 20XX Person A turned XX.

In late 20XX account 1 was transferred out of your name and into Person A's name.

In mid 20XX you became aware of the implication to your tax when you logged onto My Tax via My Gov to complete your income tax return. My Tax showed:

•                    'capital gains or losses' for Account 1.

•                    'capital gains or losses' for Account 2.

Financial Institution A advised, in 20XX, that there would be no CGT payable by you as trustee as the accounts were not taxable until the funds were distributed to the beneficiaries, Person A and Person B.

Financial Institution A provided you with information that Person A and Person B are the beneficial owners and the nomination of them as an account designation created a bare trust type arrangement.

You relied on this information from Financial Institution A.

The law firm handling the deceased's estate advised in correspondence from late 20XX that they will make a further distribution from the estate retaining the final funds of the estate in trust pending the finalisation of taxation and associated manners.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10