Private ruling: Beneficiary
Date of advice: 21 November 2025
Published: 5 January 2026
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Was P1 absolutely entitled to the property of the Trust in accordance with section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: If the answer to question 1 is yes, does Division 128 of the ITAA 1997 apply to disregard any capital gain for the executors of P1's Estate (the Estate) when the property of the Trust to which P1 was absolutely entitled vested in them as executors for the Estate? | A2: No, as no CGT event will happen when the property of the Trust is transferred to the Executors for the Estate. | Q3: Does Division 128 of the ITAA 1997 apply such that the transfer by the executors of the property of the Trust to B1 will be disregarded for capital gains tax purposes? | A3: Yes

Relevant facts and circumstances: 1. P1 was the named beneficiary of the Trust. 2. The Trust was established when P1 was a minor. 3. The Trustee for the Trust are T1 and T2. 4. Under the terms of the Trust, when P1 attained a relevant age the trustee held the trust assets and income therefrom for P1 absolutely and beneficially. 5. T1 and T2 hold trust assets as trustee for the Trust. 6. P1 attained the relevant age. P1 never called on the trustee for the Trust to transfer the assets to them. 7. P1 died several years later. 8. Following the death of P1, the Trust continued to operate. 9. Probate of the estate of P1 was granted and the executors became executors of P1's estate (the Estate). 10. P1's Will bequeathed their estate to B1. 11. The executors of the Estate want to terminate the Trust and give the trust assets to B1. 12. To give effect to this intention: (a) the trustee of the Trust will transfer the trust assets to the executors of the Estate, in their capacity as executors and trustee of the Estate, and (b) then, the executors will, in accordance with P1's Will, transfer the trust assets to B1.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 106-50 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 Division 128 | Income Tax Assessment Act 1997 section 128-10 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 128-20 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Detailed Reasoning - Detailed reasoning: Division 128 of the ITAA 1997 sets out what happens when you die and a CGT asset you owned just before dying devolves to your legal personal representative or passes to a beneficiary in your estate. Section 128-10 of the ITAA 1997 states that 'when you die, a capital gain or capital loss from a CGT event that results for a CGT asset you owed just before dying is disregarded'. Section 995-1 of the ITAA 1997 relevantly states that 'legal personal representative means: (a) an executor or administrator of an estate of an individual who has died...' Subsection 104-10(1) of the ITAA 1997 states that 'CGT event A1 happens if you dispose of a CGT asset'. Subsection 104-10(2) of the ITAA 1997 provides that 'you dispose of a CGT asset if a change in 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'. In Ellison & Anor v Sandini Pty Ltd & Ors; FC of T v Sandini Pty Ltd & Ors [2018] FCAFC 44, Jagot J stated the following about the meaning of 'beneficial owner' for the purposes of section 104-10 of the ITAA 1997: ... a 'beneficial owner' of an asset has more than a mere proprietary interest in the asset. To be a beneficial owner the person must have rights which a court of equity would enforce involving full dominion over the asset... (at paragraph 99) Probate of the estate of P1 has been granted. Following the death of P1 the Trust was not terminated and the trustee of the Trust continued to hold the trust assets and income for the benefit of the beneficiary. In these circumstances, P1's interest in the Trust (vested in possession and indefeasible) devolved to the executors of the Estate (legal personal representative), and the executors of the Estate became the sole beneficiary of the Trust. From P1's death, the executors of the Estate were absolutely entitled to the trust assets as against the trustee of the Trust - they held all of the beneficial interests in the trust assets (as trustee for the Estate), and could direct the trustee of the Trust to transfer the trust assets to the Estate. Subsection 108-5(1) of the ITAA 1997 states that 'a CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. The executors of the Estate now want to cause the Trust to terminate and have the trust assets pass through the Estate to B1. To give effect to this intention, the executors of the Estate will have the trustee of the Trust transfer the trust assets to them (as trustee of the Estate). Paragraph 144 of TR 2004/D25 states that '...no CGT event happens when the legal title in an asset to which a beneficiary is absolutely entitled as against the trustee is transferred to the beneficiary'. Therefore, when the trustee of the Trust transfers the trust assets to the Estate, no CGT event will happen. There will be no capital gain or capital loss from a CGT event when the trust assets are transferred. As there will be no CGT event from the transaction, Division 128 of the ITAA 1997 will not operate to disregard a capital gain or loss | Detailed Reasoning - Detailed reasoning: Subsection 128-15 of the ITAA 1997 relevantly provides: (1) This section sets out what happens if a CGT asset you owned just before dying: (a) devolves to your legal personal representative; or (b) passes to a beneficiary in your estate. (2) The legal personal representative, or beneficiary, is taken to acquire the asset on the day you died. (3) Any capital gain or capital loss the legal personal representative makes if the asset passes to a beneficiary in your estate is disregarded. Paragraph 128-20(1)(a) of the ITAA 1997 provides that 'a CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset: (a) under your will, or that will as varied by a court order...'. The executors of the Estate will transfer the trust assets (assets of the Estate) to B1 in accordance with P1's Will. CGT event A1 will happen. As the trust assets (assets of the Estate) will be transferred from the Estate to B1 in accordance with P1's Will, any capital gain or loss that results to the executors of the Estate from the transfer will be disregarded under subsection 128-15(3) of the ITAA 1997.

Reasons for decision: Subsection 106-50(1) of the ITAA 1997 states that '... from just after the time you become absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), the asset is treated as being your asset (instead of being an asset of the trust)'. Subsection 106-50(2) of the ITAA 1997 treats an act done in relation to the asset by the trustee as an act done by the absolutely entitled beneficiary. | Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words absolutely entitled to a CGT asset as against the trustee of a trust as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25) states the following about when a beneficiary is absolutely entitled as against a trustee: | 10. The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. This derives from the rule in Saunders v. Vautier applied in the context of the CGT provisions... | 41. The principle invoked in the case of Saunders v. Vautier was that if a sole beneficiary's interest in the trust property is vested and indefeasible and they are of age then they can put an end to the trust by directing the trustees to transfer the trust property to them or at their direction, even though the trust deed contains a contrary intention. The basis of the principle is that a beneficiary is entitled now to that which will be theirs eventually anyway... | 47. It should be noted that the principle is concerned with whether a beneficiary has the ability to terminate the trust in respect of the asset, and not whether the beneficiary actually terminates the trust, or even whether they seek to terminate it. | 64. The existence of a trustee's lien to enforce a right of indemnity against a trust asset will also not prevent a beneficiary being absolutely entitled to that asset. The rights of beneficiaries are always subject to the rights of the trustee to be indemnified for outgoings. However, the existence of a trustee's right to be indemnified should not be viewed as diluting or erasing any rights held by the beneficiaries. It just means that the beneficiaries can only exercise their rights subject to the rights of a trustee to be indemnified. | 74. A vested interest is one that is bound to take effect in possession at some time and is not contingent upon an event occurring that may or may not take place. A beneficiary's interest in an asset is vested in possession if they have the right to immediate possession or enjoyment of it. | 75. Also, the interest must not be able to be defeated by the actions of any person or the occurrence of any subsequent event... | 76. A beneficiary is a sole beneficiary in respect of a trust asset if no other beneficiary has an interest in the asset... | 78. Because a sole beneficiary in respect of an asset has the totality of the beneficial interests in the asset, they automatically satisfy the requirement ... that their interest in the asset be vested in possession and indefeasible. Therefore, a sole beneficiary in respect of a trust asset will be absolutely entitled to the asset as against the trustee if the beneficiary can (ignoring any legal disability) terminate the trust in respect of the asset by directing the trustee to transfer the asset to them or to transfer it at their direction. | In Kafataris v The Deputy Commissioner of Taxation [2008] FCA 1454, Lindergen J stated | ... the expression 'absolutely entitled to the asset as against the trustee' in subs (5) of s 104-55 and s 104-60 of the Act is intended to describe a situation in which the beneficiary of a trust has a vested, indefeasible and absolute entitlement in trust property and is entitled to require the trustee to deal with the trust property as the beneficiary directs. (at paragraph 61) | Under the terms of the Trust, P1 is the named beneficiary and when they attain the relevant age the trust assets and income therefrom are held upon trust for them absolutely and beneficially. When P1 attained the relevant age, their interest in the trust assets and income became vested in interest and indefeasible. | P1 turned the relevant age. From that time, P1 could call on the trustee to transfer the trust assets to them. | P1 was absolutely entitled to the trust assets and income as against the trustee of the Trust under section 106-50 of the ITAA 1997.