Edited version of private advice

Authorisation Number: 1052188352650

Date of advice: 03 November 2023

Ruling

Subject: CGT - fixed trusts

Question 1

Is the Trust a fixed trust for the purposes of section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) and subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The beneficiary has a vested and indefeasible interest in the income and capital of the Trust and a fixed entitlement exists in accordance with subsection 272-5(1) of Schedule 2F.

Question 2

Can the foreign resident beneficiary disregard a capital gain made from a capital gains tax event happening in respect of their interests in the Trust under subsection 855-40(2) of the ITAA 1997?

Answer

Yes. The conditions in subsection 855-40(2) are satisfied; the beneficiary is a foreign resident, the Trust is a fixed trust and the assets of the Trust are not taxable Australian property.

Question 3

Is the trustee of the Trust liable to pay tax in respect of an amount to the extent that the amount gives rise to a capital gain that is disregarded for a beneficiary under subsection 855-40(2) of the ITAA 1997?

Answer

No. To the extent that the amount relates to a capital gain that is disregarded by the non-resident beneficiary under subsection 855-40(2), the trustee is not liable to pay tax in respect of that amount pursuant to subsection 855-40(3).

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A died and left a Will.

The Will dictated that Person A give all their property both real and personal to the Trustee upon trust for the grandchildren of his sibling.

Grandchild A is a foreign resident for tax purposes.

Under the terms of Person A's Will:

•         Grandchild A had a residual interest of X% in the income and capital of the deceased estate.

•         The Trustee did not have discretionary powers that would have the effect of defeating Grandchild A's entitlement as a beneficiary.

•         There are no contingencies as the conditions in the Will were all satisfied by the time Person A passed away.

Pursuant to the Will, a testamentary trust (the Trust) was established for Grandchild A's share of entitlements to Person A's deceased estate.

The deceased estate made cash distributions to the Trust. These funds were invested in Australian shares and Australian managed funds.

The Trust received the following proceeds:

•         capital gains from managed funds that are attributable to assets that are not taxable Australian property.

•         $XX from the sale of Australian shares and units in Australian managed funds.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 section 855-10

Income Tax Assessment Act 1997 section 855-40

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

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

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

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

Income Tax Assessment Act 1997 subsection 855-40(3)

Income Tax Assessment Act 1997 section 995-1