Edited version of private advice

Authorisation Number: 1052166386518

Date of advice: 11 September 2023

Ruling

Subject: Capital gains tax

Question 1

Will the Commissioner treat the trustee of the Testamentary Trust X (TTX) in the same way as a legal personal representative (LPR) for the purposes of Division 128, in particular subsection 128-15(3) in accordance with PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust?

Answer

Yes.

Division 128 of the ITAA 1997 deals with CGT consequences that arise from a deceased estate. Any capital gain or loss made by a trustee of a deceased estate (or LPR) is disregarded under section 128-15 of the ITAA 1997 if an asset of the estate 'passes' to a beneficiary in accordance with section 128-20. The trustee of a testamentary trust is treated in the same manner as the trustee of a deceased estate or LPR for the purposes of applying Division 128 of the ITAA 1997 (PS LA 2003/12). The trustee of TTX will be treated for the purposes of subsection 128-15(3) as a LPR at the time when an in-specie distribution of the property to the beneficiaries as provided for in the deceased's will, occurs. Therefore section 128-15 applies to disregard any capital gain or loss made by TTX.

Question 2

Will any capital gain that arises when the Property passes from TTX to the beneficiaries pursuant to Transfer One be disregarded?

Answer

Yes.

For the reasons explained in the analysis contained in Question 1, The Commissioner confirms that PS LA 2003/12 has application in relation to the transfer of the property by the trustee of TTX to the beneficiaries.

Question 3

Will the Commissioner treat the trustee of the Testamentary Trust Y (TTY) in the same way as a legal personal representative (LPR) for the purposes of Division 128, in particular subsection 128-15(3) in accordance with PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust?

Answer

Yes.

Division 128 of the ITAA 1997 deals with CGT consequences that arise from a deceased estate. Any capital gain or loss made by a trustee of a deceased estate (or LPR) is disregarded under section 128-15 of the ITAA 1997 if an asset of the estate 'passes' to a beneficiary in accordance with section 128-20. The trustee of a testamentary trust is treated in the same manner as the trustee of a deceased estate or LPR for the purposes of applying Division 128 of the ITAA 1997 (PS LA 2003/12). The trustee of TTY will be treated for the purposes of subsection 128-15(3) as a LPR at the time when an in-specie distribution of the property to the beneficiaries as provided for in the deceased's will, occurs. Therefore section 128-15 applies to disregard any capital gain or loss made by TTY.

Question 4

Will any capital gain that arises when the Property passes from TTY to the beneficiaries pursuant to Transfer One be disregarded?

Answer

Yes.

For the reasons explained in the analysis contained in Question 3, The Commissioner confirms that PS LA 2003/12 has application in relation to the transfer of the property by the trustee of TTY to the beneficiaries.

Question 5

Will Individual A be liable to any capital gains tax in relation to the transfer of an ownership interest in the Property from Individual E to Individual A (Transfer Two)?

Answer

No.

CGT event A1 happens when you dispose of a CGT asset. The beneficial owner of the CGT asset will be liable to determine the capital gain or loss from the event. In this case, Individual A, in any capacity, is not disposing of a CGT asset, therefore, no CGT event occurs for them, and they do not need to determine any capital gain or loss from receiving the property interest.

This ruling applies for the following period:

Year ended 30 June 2024

The scheme commenced on:

XX November 20XX

Relevant facts and circumstances

The late Individual X and the late Individual Y were married.

On XX November 20XX, the late Individual X passed away. Probate was granted X November 20XX to the child, Individual A.

On XX March 20XX, the late Individual Y passed away. Probate was granted XX June 20XX to Individual A.

The late Individual X and the late Individual Y owned the Property as tenants in common in equal shares.

On X October 20XX, the late Individual X made their last will.

On XX April 20XX, the late Individual Y made their last will.

Their respective wills stated that the executor shall set aside out of their estate a fund (the fund) to consist of their interest in the Property. The fund was to be held on trust for their child, Individual C for their life (the trust period). At the expiration of the trust period the executors shall vest the fund in the residue of their estates.

The residue beneficiaries of the estates are the children of the deceased:

a)    Individual A;

b)    Individual B;

c)    Individual C;

d)    Individual D;

e)    Individual E; and

f)     Individual F.

The Trusts from the Wills of Individual X and Individual Y are known as the Testamentary Trust X (TTX) and the Testamentary Trust Y (TTY).

Legal title of the Property is currently held by Individual A as Trustee of TTX and TTY.

Both trusts vested on the date of death of Individual C being between XX and XX August 20XX.

The administration of both the estates were contested by their child, Individual E via Supreme Court Proceedings.

Individual A as executor/trustee has entered into settlement negotiations with Individual E in order to resolve the dispute and a Heads of Agreement was signed.

As part of the Heads of Agreement, Individual E will transfer their interest in the Property to Individual A for a monetary amount.

To comply with the Heads of Agreement, Individual A as executor will first transfer the property as tenants in common in equal interests to each residue beneficiary (Transfer One).

Individual E will then transfer their ownership interest of the Property to Individual A for a monetary amount (Transfer Two)

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 128-15(3)

Income Tax Assessment Act 1997 Section 128-20

Income Tax Assessment Act 1997 Section 104-10