Edited version of private advice

Authorisation Number: 1052231779536

Date of advice: 13 March 2024

Ruling

Subject: Legal personal representative

Question 1:

Will the Commissioner of Taxation treat the Taxpayer in the same way as a legal personal representative ('LPR') for the purposes of Division 128 of the Income Tax Assessment Act 1997 ('ITAA 1997'), in particular subsection 128-15(3) of the ITAA 1997, in accordance with Law Administration Practice Statement PS LA 2003/12 ('PS LA 2003/12')?

Answer:

Yes

Question 2:

Will the Commissioner of Taxation confirm that he will apply the ATO practice as set out in PS LA 2003/12 to the Taxpayer, and disregard any capital gain that arises in relation to the proposed transfer of assets to the beneficiaries ('Proposed Transaction')?

Answer:

Yes

This ruling applies for the following periods:

DD MM YYYY to DD MM YYYY

The Scheme commences on:

DD MM YYYY

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Background Information

1.    Taxpayer A of XXX, died on DD MM YYYY, leaving a Will dated DD MM YYYY ('the Will').

2.    Taxpayer B (child of Taxpayer A) of XXX and Taxpayer C (child of Taxpayer A) of YYY are the Executors of the Estate of Taxpayer A ('the Executors').

3.    The Executors obtained a Grant of Probate of the Will on DD MM YYYY. For the purposes of the Probate, the Estate was valued at $xyz.

4.    Under the terms of the Will, one half of the assets of the Estate were to be held by the Executors, as Trustees of the testamentary trust, the XYZ Testamentary Trust.

5.    By deed of confirmation of the XYZ Testamentary Trust, the Executors appointed Taxpayer C as the appointer of the XYZ Testamentary Trust and Taxpayer B was removed as a trustee of the XYZ Testamentary Trust, leaving Taxpayer C as the sole trustee of the XYZ Testamentary Trust.

6.    The applicant has provided a detailed list of assets that fell within the residuary of Taxpayer A's estate, that were transferred to the XYZ Testamentary Trust at the time of Taxpayer A's death ('the Relevant Assets').

7.    The XYZ Testamentary Trust was established primarily for the benefit of Taxpayer C and other beneficiaries connected with them.

Proposed transaction

8.    It is proposed that, pursuant to Clause 25(b) of Taxpayer A's Will, there will be a distribution of the Relevant Assets to Taxpayer C and their spouse, who are both beneficiaries of the XYZ Testamentary Trust.

9.    The purpose of the proposed transaction is to simplify Taxpayer C's affairs by removing an unnecessary entity, being the XYZ Testamentary Trust.

Information provided

10. You have provided a number of documents containing detailed information in relation to the XYZ Testamentary Trust, including:

•           Private Binding Ruling ('PBR') Application, dated DD MM YYYY

11. We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Relevant legislative provisions

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

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.

SUMMARY - Question 1

The Commissioner of Taxation will treat the Taxpayer in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3), in accordance with PS LA 2003/12.

SUMMARY - Question 2

The Commissioner of Taxation confirms that he will apply the ATO practice as set out in PS LA 2003/12 to the Taxpayer and disregard any capital gain that arises in relation to the proposed transfer of assets to the beneficiaries ('Proposed Transaction').

Detailed reasoning

12. Division 128 of the ITAA 1997 sets out what happens when you die and a CGT asset you owned just before dying devolves to your legal personal representative or passes to a beneficiary in your estate.

13. A CGT asset has the meaning given by section 108-5 of the ITAA 1997, where subsection 108-5(1) of the ITAA 1997, defines a CGT asset to be:

(a) any kind of property; or

(b) a legal or equitable right that is not property.

14. To avoid doubt, subsection 108-5(2) of the ITAA 1997 lists the following as CGT assets:

(a) part of, or an interest in, an asset referred to in subsection (1);

(b) goodwill or an interest in it;

(c) an interest in an asset of a partnership;

(d) an interest in a partnership that is not covered by paragraph (c).

15. Section 128-10 of the ITAA 1997, titled 'Capital gain or loss when you die is disregarded', states that when you die, a capital gain or capital loss from a CGT event that results for a CGT asset you owned just before dying is disregarded.

16. Section 128-15 of the ITAA 1997, titled 'Effect on the legal personal representative or beneficiary', states the following at subsections 128-15(1), (2) and (3) of the ITAA 1997:

1)            This section sets out what happens if a CGT asset you owned just before dying:

a)         devolves to a 'legal personal representative"; or

b)         'passes•to a beneficiary of that person's estate.

2)            The legal personal representative or beneficiary is taken to have acquired the asset on the day you died.

3)            Any capital gain or capital loss the legal personal representative makes if the asset passes to a beneficiary in your estate is disregarded.

17. Further, subsection 128-15(4) of the ITAA 1997 sets out modifications to the cost base and reduced cost base of the CGT asset in the hands of the legal personal representative or beneficiary.

18. The term 'legal personal representative ('LPR') is defined in subsection 995-1(1) of the ITAA 1997 and relevantly includes 'an executor or administrator of an estate of an individual who has died'.

19. Section 128-20 of the ITAA 1997 defines when a 'CGT asset passes to a beneficiary' in a person's estate. Relevantly, this will happen if the person / beneficiary becomes the owner under the deceased's will (paragraph 128-20(1)(a)).

20. Subsection 128-20(2) of the ITAA 1997 provides that a CGT asset does not pass to a beneficiary in your estate if the beneficiary becomes the owner of the asset because your LPR transfers it under a power of sale.

Effect of PS LA 2003/12

21. PS LA 2003/12 confirms the Commissioner's longstanding administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3) of the ITAA 1997.

22. PS LA 2003/12 further confirms that broadly stated, the ATO's practice is to not recognise any taxing point in relation to assets owned by a deceased person until they cease to be owned by the beneficiaries named in the will.

Application to your circumstances

23. Under the terms of the Taxpayer A's Will, one half of the assets of the Estate were to be held by the Executors, Taxpayer B and Taxpayer C, as Trustees of the testamentary trust, the XYZ Testamentary Trust.

24. By deed of confirmation of the XYZ Testamentary Trust, the Executors appointed Taxpayer C as the appointer of the XYZ Testamentary Trust and Taxpayer B was removed as a trustee of the XYZ Testamentary Trust, leaving Taxpayer C as the sole trustee of the XYZ Testamentary Trust.

25. The XYZ Testamentary Trust was created under Taxpayer A's Will and is a testamentary trust.

26. PS LA 2003/12 confirms the Commissioner's longstanding administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3) of the ITAA 1997. In this case, this means that the trustee of the testamentary trust will be treated in the same way as a legal personal representative for the purposes of Division 128.

27. PS LA 2003/12 further confirms that broadly stated, the ATO's practice is to not recognise any taxing point in relation to assets owned by a deceased person until they cease to be owned by the beneficiaries named in the Will.

28. When the taxpayer transfers assets to the beneficiaries, the cost base and reduced cost base of each asset in the hands of the beneficiary is calculated in the same way as it would have been if the asset had passed to them from the deceased's legal personal representative.

Conclusion - Question 1

The Commissioner of Taxation will treat the Taxpayer in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3), in accordance with Law Administration Practice Statement PS LA 2003/12.

Conclusion - Question 2

The Commissioner of Taxation confirms that he will apply the ATO practice as set out in PS LA 2003/12 to the Taxpayer and disregard any capital gain that arises in relation to the proposed transfer of assets to the beneficiaries ('Proposed Transaction').

ATO view documents

Law Administration Practice Statement 2003/12 ('PS LA 2003/12') - Capital Gains Tax Treatment of the Trustee of a Testamentary Trust.

Key words

Capital Gains Tax

Testamentary Trust

Beneficiary

Legal Personal Representative

Executors of Will