Private ruling: CGT - Division 128 roll-over - testamentary trust
Date of advice: 16 September 2025
Published: 17 November 2025
Ruling period: year ending 30 June 2025 | year ending 30 June 2026

Ruling: Q1: Will the transfer of assets from the A Trust to Individual A satisfy the requirements of section 128-15 of the Income Tax Assessment Act 1997 (ITAA 1997) such that the trustee will disregard any capital gain? | A1: Yes | Q2: Will the transfer of assets from A Trust to Co Pty Ltd satisfy the requirements of section 128-15 of the ITAA 1997 such that the trustee will disregard any capital gain? | A2: Yes | Q3: Will the transfer of assets from the B Trust to Individual B satisfy the requirements of section 128-15 of the ITAA 1997 such that the trustee will disregard any capital gain? | A3: Yes | Q4: Will the transfer of assets from the B Trust to Co Pty Ltd satisfy the requirements of section 128-15 of the ITAA 1997 such that the trustee will disregard any capital gain? | A4: Yes

Relevant facts and circumstances: The late xx (Deceased) passed away on xx xx xx. Probate was granted on xx xx xx. The Deceased's last will and testament ("Will") was signed on xx xx xx. Under the terms of the Will, testamentary trusts were established, each to be separately controlled by Deceased's children; Individual A (Individual A), Individual B (Individual B). The testamentary trust controlled by Individual A is named A Trust. The testamentary trust controlled by Individual B is named B Trust. Clause x of the Will required the executors and trustees of the estate to transfer specific assets held by Deceased just before his death to A Trust (the testamentary trust controlled by Individual A): [Real Property] Clause x of the Will required the executors and trustees of the estate to transfer specific assets held by Deceased just before his death to B Trust (the testamentary trust controlled by Individual B): [Real Property] Clause x of the Will provided for the residue of the estate to be held in equal shares by the trustees of the testamentary trusts: [Residue of estate] On administration of the estate, the specified and residue assets (being assets held by Deceased just before his death) were transferred to the testamentary trusts to be held on trust in accordance with the terms specified at clause x of the Will. The relevant terms are: [Terms provided] Proposed actions Individual A and Individual B are seeking to simplify their affairs. To achieve this: ¾ Individual A is seeking to vest A Trust; and ¾ Individual B is seeking to vest B Trust. Water licences The following water licences were owned by Deceased when he died: ¾ [Water licence numbers listed] In accordance with clause x of the Will, interests in these water licences commenced to be held in trust under the terms of A Trust and B Trust. It is proposed that, when vesting A Trust and B Trust, the trustees will specify that the interests in the water licences will be transferred to a company named Co Pty Ltd. Co Pty Ltd is an Australian resident private company in which Individual A and Individual B each own 50% of the shares. Individual A and Individual B are also directors of Co Pty Ltd. Transfer of other assets from A Trust It is proposed that, when A Trust vests, all remaining assets (i.e., all assets except for the water licences specified above) will be transferred to Individual A. Transfer of other assets from B Trust It is proposed that, when B Trust vests, all remaining assets (i.e., all assets except for the water licences specified above) will be transferred to Individual B. Agreement regarding cost base The recipient beneficiaries will sign a document in which they agree that their acquisition cost for the properties is equal to the trust's cost base, as specified in Practice Statement PS LA 2003/12. Execution of the deeds The vesting deeds will not be executed until the private ruling decision is received from the Commissioner

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | 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 subsection 128-15(3) | Income Tax Assessment Act 1997 section 128-20 | Income Tax Assessment Act 1997 paragraph 128-20(1)(c) | Income Tax Assessment Act 1997 subsection 995-1

Reasons for decision: Summary: Any capital gain or loss made by the trustees of A Trust and/or B Trust on appropriation of the CGT assets held by Deceased just before Deceased's death to Individual A, Individual B and Co Pty Ltd will be disregarded. | Detailed Reasoning - Detailed reasoning: CGT event A1 under section 104-10 of the ITAA 1997 happens when there is a change of ownership of an asset. As the death of a person causes a change in the ownership of all the assets owned by that person, death would cause the disposal of the assets of the deceased and in the absence of a relieving provision, potentially trigger a liability for CGT. Division 128 of the ITAA 1997 contains rules that apply when an asset owned by a person just before they die, passes to their legal personal representative (LPR) or passes to a beneficiary in a deceased estate. Under section 128-10 of the ITAA 1997, when a person dies, any capital gain or loss from a CGT event that results from a CGT asset the person owned just before dying is disregarded. Relevantly, LPR is defined in subsection 995-1(1) of the ITAA 1997 to mean an executor or administrator of an estate of an individual who has died. Section 128-15 of the ITAA 1997 states: (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 have *acquired 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. The meaning of an asset 'passing to a beneficiary' is provided by section 128-20 of the ITAA 1997: (1) 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; or (b) by operation of an intestacy law, or such a law as varied by a court order; or (c) because it is appropriated to the beneficiary by your legal personal representative in satisfaction of a pecuniary legacy or some other interest or share in your estate; or (d) under a deed of arrangement if: (i) the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and (ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other *CGT assets that formed part of your estate. (2) A *CGT asset does not pass to a beneficiary in your estate if the beneficiary becomes the owner of the asset because your *legal personal representative transfers it under a power of sale. Paragraph 128-20(1)(c) of the ITAA 1997 states that an asset passes to a beneficiary if the beneficiary becomes the owner of the asset because it is 'appropriated' to the beneficiary. The term 'appropriated' is not defined in the tax laws. The concept was considered Yule v Irwin & Ors (No. 2) [2016] SASC 178 where the Court observed: The power of appropriation applies to any form of property. An executor has absolute dominion over the estate of a deceased for the purposes of distribution. ... 168. There are some basic rules concerning the exercise of a power of appropriation. At common law an executor cannot force a beneficiary to accept a particular asset in partial satisfaction of the share of the residuary estate. Essential to an appropriation is the beneficiary's consent to the receipt of a particular asset in lieu of a monetary sum to which the beneficiary is entitled However, an appropriation in favour of one beneficiary, even if that beneficiary is themself one of the personal representatives, can be effected without requiring the consent of and notwithstanding the objection by any other beneficiary. ... It does not matter whether the asset is transferred directly to the beneficiary or is transferred to the beneficiary by your legal personal representative. In instances where assets are not passing from the legal personal representative of the deceased to the beneficiary of the will, but from the trustee of a testamentary trust to the beneficiary of the trust, Division 128 of the ITAA 1997 does not have application. However, Practice Statement Law Administration PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust (PSLA 2003/12) confirms the Commissioner's longstanding administrative practice of treating the trustee of a testamentary trust (being a trust created under a will or by the operation of statute, such as intestacy laws) in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3) of the ITAA 1997: Broadly stated, the ATO's practice is not to recognise any taxing point in relation to assets owned by a deceased person until they cease to be owned by the beneficiaries named in the will (unless there is an earlier disposal by the LPR or testamentary trustee to a third party of CGT event K3 applies). ... The 'Commissioner's general administrative practice' is not defined in the Income Tax Assessment Acts: guidance is provided by the Explanatory Memorandum to Tax Laws Amendment (Improvements to Self Assessment) Bill (No 2) 2005 (EM) and Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? The EM explains a general administrative practice is usually adopted for the efficient administration of the tax system documented in various ways including a Law Administration Practice Statement: 3.130 General administrative practice will usually be established by the ATO having communicated consistently to a wide range of taxpayers on a particular issue. A general administrative practice is usually adopted for the efficient administration of the taxation system and will often be documented in a Law Administration Practice Statement, General Administration Law Administration Practice Statement, an ATO policy document (eg, the ATO Receivables Policy), or other precedential material (such as an ATO Interpretive Decision). An example is Law Administration Practice Statement PS LA 2003/8 which sets out the rules developed to lessen the cost of accounting for low cost assets for taxpayers carrying on a business. Where a draft public ruling represents the Commissioner's only public statement on an issue, the draft ruling will usually represent the Commissioner's general administrative practice . The trustees of A Trust and B Trust are not the legal personal representatives of the Deceased. Instead, the trusts were established in accordance with the terms of the Will (i.e., they are "testamentary trusts"). Consequently, it is necessary to rely on the Commissioner's general administrative practice as stated in PS LA 2003/12 to determine whether the trustees can disregard any capital gain arising from the transfer of the assets to the beneficiaries under section 128-15 of the ITAA 1997. That is, whether the trustees of the testamentary trusts are to be treated in the same way as a legal personal representative under Division 128 of the ITAA 1997. In this case, the trust deeds of the testamentary trusts do not prescribe for particular assets (being assets owned by Deceased just before Deceased died) to pass to particular beneficiaries. Instead, clause x of the Will specifies a mechanism for the distribution of assets to beneficiaries on the vesting of the trusts. The trustees will pass a resolution to transfer specified assets to Individual A and Individual B on the vesting of A Trust and B Trust respectively. This will result in the assets being appropriated to Individual A and Individual B respectively. Pursuant to the proposed scheme the trustee of A Trust will pass the trust's assets from the trust to Individual A. As Individual A is the child of Deceased, Individual A is an eligible beneficiary of A Trust under clause x of the Will. Similarly, the trustee of B Trust will pass the trust's assets from the trust to Individual B. As Individual B is the child of Deceased, Individual B is an eligible beneficiary of B Trust under clause x of the Will. Co Pty Ltd is an eligible beneficiary of A Trust and B Trust under clause x of the Will. The trustees of A Trust and B Trust will pass resolutions to transfer their interests in the water licence assets to Co Pty Ltd on the vesting of those trusts. Consistent with PS LA 2003/12: ¾ A Trust and B Trust, are testamentary trusts and will be treated in the same manner as a deceased estate under Division 128 of the ITAA 1997; ¾ the assets of the Deceased will 'pass' from the trusts to Individual A , Individual B and Co Pty Ltd in accordance with the Will and in accordance with the meaning provided by paragraph 128-20(1)(c) of the ITAA 1997; and ¾ any capital gain or loss the trustees of testamentary trusts make when the assets pass to the beneficiaries of the trusts is disregarded in accordance with the principles set out in section 128-15 of the ITAA 1997.