Private ruling: Capital gains tax - deceased estate - life interest - disposal
Published: March 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the trustees for the estate of X be able to make a choice under subsection 115-230(3) of the Income Tax Assessment Act 1997 (ITAA 1997) that subsection 115-230(4) of the ITAA 1997 applies in respect of net capital gains derived by the estate? | A1: Yes. | Q2: Will the Commissioner exercise his discretion under section 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to assess the trustee of the Trust under section 99 of the ITAA 1936 in respect of any capital gains for the years ended 30 June 2014 to 30 June 2017? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 99A(2), | Income Tax Assessment Act 1936 Section 99, | Income Tax Assessment Act 1997 Subsection 115-230(3) and | Income Tax Assessment Act 1997 Subsection 115-230(4).

Reasons for decision: Summary: Under the ITAA 1936, an income beneficiary who is entitled to a share of a trust's income is generally assessed on a similar share of the trust's net (or taxable) income. If the net income includes capital gains, the income beneficiary may be assessed on those capital gains even if, under the terms of the trust, they are not entitled to benefit from the capital gains. Under section 115-230 of the ITAA 1997 the trustee of a resident testamentary trust can make a choice in respect of the capital gains that are included in the trust's net income so that the trustee, rather than an income beneficiary, will be assessed on capital gains of the trust. The trustee will be assessed on the beneficiary's share under section 99A or (at the Commissioner's discretion) 99 of the ITAA 1936. The trustee who chooses to be assessed on the capital gains which would otherwise be assessed to an income beneficiary (or the trustee on the income beneficiary) can make the choice if, under the terms of the trust, the income beneficiary cannot benefit from the capital gains. This means that the tax on the capital gains is in effect borne by the capital beneficiaries of the trust who will ultimately benefit from the capital gains. A trustee can only make a choice under this section in relation to a trust estate: (a) that results from: (i) a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil; or (ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate; and (b) that is, in the income year in respect of which the choice is made, a resident trust estate within the meaning of Division 6 of Part III of the ITAA 1936. The trustee can make a choice in relation to a beneficiary who: • does not have a vested and indefeasible interest in trust property representing the gain under the terms of the trust, and • has not been paid, or had applied to them, the benefit of that property. The trustee is required to make any choice within two months from the end of the income year to which the choice relates. The Commissioner may allow further time for the trustee to make a choice in special circumstances. The facts in your case show that the trustees comply with all of the conditions attached to the choice provisions. The Commissioner will therefore accept the trustee's choice to be assessed on capital gains. Generally, if no beneficiary of a trust estate is presently entitled to the net income of the estate, the trustee is assessed under section 99A of the ITAA 1936. However under subsection 99A(2) of the ITAA 1936, the Commissioner may exercise his discretion if he is of the opinion that it would be unreasonable for section 99A to apply. If this is the case, the trustee will be assessed under section 99 of the ITAA 1936. Section 99A of the ITAA 1936 does not apply in the following circumstances: • the trust resulted from a will; • the trust is a bankrupt estate; • the trust is a trust that consists of property referred to in paragraph 102AG(2)(c): • and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in such circumstances. Subsection 99A(3) of the ITAA 1936 outlines the matters the Commissioner will consider before applying this discretion. The relevant matters include the circumstances in which property was acquired by the trust estate and such other matters as the Commissioner thinks fit. In considering the facts of this case, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA 1936 should apply in relation to the trust estate. The Commissioner will exercise his discretion that section 99A does not apply.

Relevant facts: You are trustees for the estate of X | The testamentary trust was established as a result of the will of the late X who passed away on in the 19XX income year with Probate being granted after a period of time. | The will created a number of equitable life/ remainder interests. | You have provided a number of documents which forms part of this private binding ruling. | • Copy of last will and codicil and grant of probate. | • Simple diagram of the estate | • Detailed diagram of the estate | The existing trust holds about $A Million dollars of listed shares with no other assets and no material liabilities. Approximately $B million is represented by shares held at the date of death. The balance has been acquired after death. | The cost base of the post death shares is $C million. All shares have been held for over 12 months. | You are considering selling some of the shares and will make a capital gain. | The life tenants are not entitled to benefit from the gains because they are not net income of the estate.