Edited version of private advice

Authorisation Number: 1052206762927

Date of advice: 21 December 2023

Ruling

Subject: Testamentary trusts

Question 1

Will each Estate Trust established by the Executor be a trust that resulted from the Will of the Deceased, for the purposes of subsection 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 clauses X and 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 a beneficiary of an Estate Trust under 18 years old is made presently entitled to a share of the net income in relation to a year of income, is the amount considered "excepted trust income" for the purpose of subsection 102AG(2) of the ITAA 1936 and thereby subject to the rates of tax prescribed under section 1 of Part 1 of Schedule 10 of the Income Tax Rates Act 1986?

Answer

Yes.

Income is only regarded as excepted trust income if the property was transferred to the trustee of the trust estate to benefit the beneficiary of the testamentary trust from the estate of the deceased person concerned, as a result of the Will, codicil, intestacy or order of a court mentioned in paragraph 102AG(2)(a) of the ITAA 1936. Additional assets cannot be placed into the Trust unless they are from the estate of the deceased person.

Question 3

Will the trustee of each Estate Trust be treated as the trustee of a testamentary trust in the same way as a legal personal representative for the purposes of Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997), in particular subsection 128-15(3)?

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. Law Administration Practice Statement PSLA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust 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.

This ruling applies for the following periods:

Year Ending 30 June 20XX

Year Ending 30 June 20XX

Year Ending 30 June 20XX

Year Ending 30 June 20XX

Year Ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

•        Grant of Probate dated DD MM 20XX.

•        Codicil of the Will of the Deceased dated DD MM 20XX.

•        The Deceased's Testamentary Trust (including Will) DD MM 20XX (the Will).

On DD MM 20XX, the Deceased made their last Will.

On DD MM 20XX, the Deceased made a codicil to the Will (the Codicil).

The Deceased died on DD MM 20XX.

Probate of the Will was granted to the Executor on DD MM 20XX.

The Deceased left X Beneficiaries:

•        Beneficiary 1, Beneficiary 2, Beneficiary 3. Beneficiary 4, (the Relevant Beneficiaries); and

•        X Beneficiaries who are not applicants to this ruling and therefore have not been named.

The Relevant Beneficiaries are residents of Australia for tax purposes.

Pursuant to clause X of the Will, the Deceased's Beneficiaries were appointed Trustees of The Single Testamentary Trust.

Pursuant to clause X of the Will, the Trustees shall with the consent of any of the Relevant Beneficiaries have the discretion to distribute all of any part of the share of the Deceased's Estate to which any Relevant Beneficiary would otherwise have been a beneficiary of the Single Testamentary Trust created by this Will to:

•        Any other trust, the Relevant Beneficiaries of which are confined to all or some of the Relevant Beneficiaries that would otherwise have been the Relevant Beneficiaries of the Single Testamentary Trust under this Will; or

•        such Relevant beneficiary or Relevant Beneficiary in their own personal capacity.

Four estate trusts are proposed to be created:

•        An Estate Trust with Beneficiary 1 as the sole trustee and primary beneficiary.

•        An Estate Trust with Beneficiary 2 as the sole trustee and primary beneficiary.

•        An Estate Trust with Beneficiary as the sole trustee and primary beneficiary; and

•        An Estate Trust with Beneficiary 4 as the sole trustee and primary beneficiary.

As noted above, the arrangements of X Beneficiaries are not included here.

The Relevant Beneficiaries of each Estate Trust will be confined to some or all of the Relevant Beneficiaries that would otherwise have been the Relevant Beneficiaries of the Single Testamentary Trust.

Assumption

No additional property will be transferred to any Estate Trust after the transfer of property to the trust from the Deceased's Estate

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