Edited version of private advice

Authorisation Number: 1052325636375

Date of advice: 5 November 2024

Ruling

Subject: CGT - trusts

Question 1

Will subsection 128-15(3) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard a capital gain or loss the Executors make on gifting the residuary estate to the X Testamentary Trust (XT Trust)?

Answer

Yes.

Any capital gain or loss made by the Executors when the CGT assets of the estate pass to the XT Trust will be disregarded under subsection 128-15(3) of the ITAA 1997 as the assets were assets the deceased owned just before their death and those assets passed to the beneficiaries in accordance with subsection 128-20(1) of the ITAA 1997.

Question 2

Will the modifications in subsection 128-15(4) of the ITAA 1997 apply to the cost base and reduced cost base of the date of death assets in the hands of the XT Trust?

Answer

Yes.

As the assets of the estate will pass to the XT Trust under the Will, the modifications in subsection 128-15(4) of the ITAA 1997 will apply to the cost base and reduced cost base of the assets in the hands of the XT Trust.

Question 3

Will subsection 128-15(3) of the ITAA 1997 apply to disregard a capital gain or loss the XT Trust makes on the in-specie distribution to the children's testamentary trusts of assets making up the residuary estate?

Answer

Yes.

Practice Statement PS LA 2003/12 deals with the capital gains tax treatment of the trustee of a testamentary trust and confirms the Commissioner will not depart from the ATO's long-standing administrative practice of treating the trustee of a testamentary trust in the same way that a legal personal representative is treated for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3).

The ATO's general 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 (unless there is an earlier disposal by the legal personal representative or testamentary trustee to a third party or CGT event K3 applies).

Question 4

Will the modifications in subsection 128-15(4) of the ITAA 1997 apply to the cost base and reduced cost base of the date of death assets in the hands of the children's testamentary trusts?

Answer

Yes.

As any date of death assets distributed in specie to the children's testamentary trusts will pass under the Will, the modifications in subsection 128-15(4) of the ITAA 1997 will apply to the cost base and reduced cost base of the assets in the hands of the children's testamentary trusts.

This ruling applies for the following period:

1 July 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased was an Australian tax resident and had been at all relevant times.

The Executors of the deceased estate are the children of the deceased.

The children are Australian tax residents and have been at all relevant times.

The assets of the deceased at the time of death included the residence of the deceased (now sold), personal belongings, motor vehicle, company shares and an Australian bank account.

None of the above assets were outside Australia and, other than the Australian dollar proceeds from the sale of the residence, the Executors have not acquired new assets after the death of the deceased.

The Will of the deceased specified the creation of the XT Trust with the gift of the residuary estate.

The children are the Trustees and Appointers for the XT Trust.

The income and capital beneficiaries of the XT Trust are the children's testamentary trusts and the general beneficiaries are the children and their children.

The Will states that the termination date of the XXXX Trust is the earlier of the date specified by the Trustees with the consent of the Appointer, or the X anniversary of the deceased's death.

The Will of the deceased also specified the creation of several children's testamentary trusts.

The children are the trustees for the children's testamentary trusts.

The Executors of the estate, the trustees of the XT Trust, and the trustees of the children's testamentary trusts intend to terminate (vest) the XT Trust and distribute the trust's assets in-specie to the children's testamentary trusts as allowed for under the Will.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20