Private ruling: Capital gains tax and deceased estates
Date of advice: 6 April 2020
Published: May 2020
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the trustee required to pay income tax at the individual income tax rates in the year ended 30 June 20XX where the beneficiaries were not presently entitled to any assets or income of the estate? | A1: Yes. The net income of the trust earned during the administration period is taxed at the individual income tax rates of the Deceased as no beneficiary was presently entitled to any assets or income of the estate. | Q2: Does the 50% CGT discount apply to reduce the capital gain that arose? | A2: Yes. Providing the cost base of the shares and investments have not been calculated using the indexation method, and have been owned by the Deceased for a period of at least 12 months, then the 50% discount will be applicable. | Q3: Does CGT event K3 apply to the estate? | A3: No. CGT event K3 does not apply to the sale of shares as the CGT asset that was owned just before the deceased passed away did not pass to a beneficiary of the estate. | Q4: Do the individual income tax rates apply to income of the estate for the year ended 30 June 2018? | A4: Yes. The net income of the trust earned during the administration period is taxed at the individual income tax rates of the Deceased as no beneficiary was presently entitled to any assets or income of the estate.

Relevant facts and circumstances: The Deceased passed away (the Deceased). The Deceased had a sibling. The sibling with their spouse and two children (the two children) resided overseas for a long period of time. The sibling is now also deceased. The two children of the Deceased's sibling reside permanently overseas. The two children are the residual beneficiaries of the Deceased's estate as stipulated in the Deceased's Will. The two children were both born overseas and are Australian Citizens. The Deceased had a substantial portfolio of investments. The trustees of the Deceased's estate submitted the Deceased's estates first tax return for the 20XX income year. Approximately half a year after the Deceased passed away probate was granted. A short time later the trustees of the Deceased's estate made the decision to sell and sold the assets of the Deceased's estate. All assets of the Deceased's estate were purchased by the Deceased after September 1985 and were held for more than 12 months. The taxable income of the Deceased's estate includes the following: · Trust income · Interest income · Dividend income For the 20XX income year the Deceased's estate incurred a nominal capital gain of $X,XXX,XXX (after applying current year capital losses). The trustees of the Deceased's estate applied the 50% discount against the nominal gain, making the taxable capital gain of approx. $X,XXX,XXX.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 98 | Income Tax Assessment Act 1997 Section 99 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 115-5