Edited version of private advice

Authorisation Number: 1052260223327

Date of advice: 20 June 2024

Ruling

Subject: CGT - testamentary trust

Question 1

Will the Commissioner treat the trustees of the trust in the same way as legal personal representatives (LPR's) in accordance with section 128-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Division 128 of the ITAA1997 deals with capital gains tax (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).

Question 2

Will any capital gain or loss be disregarded once the asset passes to the principal beneficiary?

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 trustees of the trust to the beneficiary.

Question 3

Is the first element of the cost base of the property for CGT purposes, in the hands of the trustees and the principal beneficiary the market value of the asset as at the deceased's date of death?

Answer

Yes.

Section 128-15 of the ITAA 1997 outlines the cost base or reduced cost base for the principal beneficiary and states that the legal personal representative or beneficiary is taken to have acquired the asset on the date the deceased died.

Item 3 of the table in section 128-15(4) of the ITAA 1997 states that for a dwelling that was your main residence just before you died that was not then being used for the purpose of producing assessable income, the first element of the cost base is the market value of the dwelling on the day you died.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased purchased the property in XX/20XX.

The property was the main residence of the deceased until they passed away.

The property was not used to produce assessable income.

The deceased passed away on XX/XX/20XX.

The deceased left a will dated XX/XX/20XX.

Probate was granted on XX/XX/20XX.

The deceased's will appointed their siblings Person A and Person B as executors and trustees.

The property was transferred to the executors and trustees pursuant to the property transfer and is currently held by the executors as joint tenants as trustees of the will trusts.

The deceased's will appointed their child, Person C as the principal beneficiary.

Person C had access to the property before the deceased passed away.

After the deceased passed away, the principal beneficiary was allowed by the trustees to reside in the property and used the property as their principal place of residence from XX/20XX.

It was agreed between the principal beneficiary and their sibling that the principal beneficiary would receive the property as their share of the estate.

The principal beneficiary pays all outgoings in relation to the estate.

The trustees now intend to transfer the property to the principal beneficiary.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 128-20

Income Tax Assessment Act 1997 subsection 128-15