Private ruling: Testamentary trust - creation of new assets
Date of advice: 12 May 2022
Published: August 2022
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Testamentary Trust disregard the capital gain on the distribution of the new land parcels to the beneficiaries of the Trust? | A1: Yes. As ownership of the property will remain the same before and after the subdivision and reorganisation of the property: • the Testamentary Trust will be deemed to have acquired the property at the time of deceased's death, and • no CGT event will occur with respect to the property on its subdivision and reorganisation into the new land parcels (section 112-25 of the Income Tax Assessment Act 1997 (ITAA 1997)). The Commissioner's practice is to treat the trustee of a testamentary trust in the same manner as a legal personal representative for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3). Subsection 128-15(3) of the ITAA 1997 provides that any capital gain or capital loss the legal personal representative makes when a CGT asset passes to a beneficiary of a deceased estate is disregarded.

Relevant facts and circumstances: Individual X acquired a property after 19 September 1985 which consisted of two titles. On the death of Individual X (the deceased) the property devolved to the executors of the estate. In accordance with the terms of the deceased's will, the property then passed to a Testamentary Trust. The Testamentary Trust is a discretionary trust. The children of the deceased are the primary beneficiaries of the Testamentary Trust. It is proposed that the trustees of the Testamentary Trust will subdivide the property either by way of subdividing or amalgamating the lots so that the land is reorganised into new separate parcels of land. The trustees of the Testamentary Trust will distribute the new land parcels to each of the beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 112-25 | Income Tax Assessment Act 1997 section 128-10 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 128-20