Private ruling: Capital gains tax
Published: February 2015
Ruling period: Income year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the trustee for the estate be liable for capital gains tax (CGT) on the sale of the property? | A1: Yes | Q2: Will the individual beneficiaries of the deceased estate be liable for any CGT on the sale of the property? | A2: No

Relevant facts and circumstances: The deceased, X died on the X. Probate of the estate was granted to the executor on X. Administration of the estate was undertaken by the executor until X after which time the trustee was appointed. The assets of the estate included the property. Under the deceased will the trustee holds the property on trust for three primary beneficiaries; one beneficiary holds a life interest in the property while the other two have a remainder interest. Under the will, on the death of the beneficiary with the life interest the property would pass to the two other primary beneficiaries as tenants in common with equal shares. The three beneficiaries and the trust entered into a Deed of Release and Indemnity. The effect of which is that the trustee will sell the property and each party will received 1/3 of the net proceeds.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-10 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 128-10 | Income Tax Assessment Act 1997 section 128-15

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or capital loss if, and only if, a CGT event happens to a CGT asset. Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. It provides that CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) defines a disposal as: You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. However section 128-10 of the ITAA 1997 provides that a capital gain or capital loss is disregarded when asset devolves to your legal personal representative or passes to a beneficiary under your will. Taxation Ruling TR 2006/14 provides the Commissioner's view on the capital gains tax consequence of creating life and remainder interests in property and of later events affecting those interests. Paragraph 187 provides: As for other trust where there is no absolutely entitled beneficiary, a trustee who holds assets for the benefit of life interest and remainder owners is, for CGT purpose, the relevant 'owner' of the trust assets. Consequently in your situation the assets will not pass to the beneficiaries but rather the trustee will sell the property and distribute the net proceeds to the beneficiaries under the Deed of Release and Indemnity. Consequently it will be the trustee and not the beneficiaries that are liable for any capital gains tax.