Edited version of private advice

Authorisation Number: 1052364624466

Date of advice: 21 February 2025

Ruling

Subject: Deceased estate residency

Question 1

Is the estate a resident of Australia?

Answer 1

No.

Question 2

Is the estate entitled to the CGT 50% discount?

Answer 2

No.

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 was a resident of Australia for taxation purposes.

The deceased passed away several years ago.

There were commercial properties in the deceased estate.

Individual A was the executor of the deceased's estate and lived in Country Z.

Individual A intended on transferring the commercial properties into their own name, but never got to do this.

Individual A was not able to travel to Australia due to the pandemic and Individual A passed away without administering the deceased estate.

Individual B was named as the executor and appointed personal representative of the Will of Individual A, as issued by the Probate Court in Country Z.

Individual B lives in Country Z and has appointed Individual C as attorney to assist with the administration of the deceased estate in Australia.

Individual B instructed Individual C to sell all properties in the Estate of the deceased to fully administered the estate.

The sale of the properties has taken place and was settled recently.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 6E

Income Tax Assessment Act 1997 section 95

Income Tax Assessment Act 1997 section 115-25

Income Tax Assessment Act 1997 section 115-110

Income Tax Assessment Act 1997 section 115-120

Income Tax Assessment Act 1997 section 115-215

Income Tax Assessment Act 1997 section 128-15

Reasons for decision

Section 95(2) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a trust estate shall be taken to be a resident trust estate in relation to a year of income if:

a)            a trustee of the trust estate was a resident at any time during the year of income; or

b)            the central management and control of the trust estate was in Australia at any time during the year income.

In this case, the trustee of the deceased estate is not an Australian resident for taxation purposes.

Both Individual A and Individual B lived outside Australia and therefore the management and control of the deceased's estate is outside Australia.

Therefore, the deceased estate is not an Australian resident for taxation purposes from the date the deceased passed away.

Section 128-15 of the ITAA 1997 states that a Capital Gains Tax (CGT) asset owned by a deceased person that devolves to a legal personal representative, or beneficiary of the deceased estate, is taken to have been acquired on the day the deceased died.

Division 115 of the ITAA 1997 deals with discount capital gains made by individuals and trusts.

To be a discount capital gain, the capital gain must result from a CGT event happening to a CGT asset that was acquired by the entity making the capital gain at least 12 months before the CGT event (section 115-25 of the ITAA 1997). In this case, the 12 months requirement is met on disposal of the properties.

Section 115-110 of the ITAA 1997 applies to a foreign resident beneficiary of a trust to adjust the discount percentage so as to deny a discount for a capital gain to the extent the gain accrued while the beneficiary was a foreign resident after 8 May 2012.

Where section 115-110 applies, section 115-115 of the ITAA 1997 contains the formulas to determine the discount percentage applying to an individual with a discount capital gain.

Further, section 115-120 of the ITAA 1997 operates to reduce or deny the discount percentage to a trustee assessed under section 98 of the ITAA 1936 in respect of beneficiaries who are foreign or temporary residents. That is, the 50% discount percentage for a capital gain is reduced to the extent that the gain is accrued while the individual beneficiary is a foreign or temporary resident after 8 May 2012.

Subdivision 115-C of the ITAA 1997 sets out the rules for dealing with the net income of a trust that has a net capital gain. The rules treat parts of the net income attributable to the trust's net capital gain as capital gains made by the beneficiary entitled to those parts.

Taxation Determination TD 2022/12 discusses the tax treatment of trust capital gains that are attributable to non-resident beneficiaries:

•                     the trustee is assessed under section 98 of the ITAA 1936 on trust capital gains attributable to the non-resident beneficiary (also where the beneficiary is made specifically entitled to the gain). The source concept in subsection 98(2A) of the ITAA 1936 has no application in relation to the capital gains as section 115-220 of the ITAA 1997 increases the amount assessable to the trustee under section 98 of the ITAA 1936 without regard to those conditions

•                     capital gains are included in the calculation of the non-resident beneficiaries' net capital gain for the income year under section 115-215 of the ITAA 1997. However, the beneficiary is entitled to a refundable tax offset for the tax the trustee pays on their behalf under subsection 98A(2) of the ITAA 1936

•                     Division 6E of Part III of the ITAA 1936 prevents double taxation by ensuring capital gain amounts are disregarded in determining the trust income and net income that may be assessed under section 98 of the ITAA 1936.