Private ruling: Income tax - deceased estate
Date of advice: 30 April 2020
Published: June 2020
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021
Date scheme commenced: 1July 2017

Ruling: Q1: Will CGT event E5 occur in respect of the post death assets following the death of the life tenant? | A1: No. The life tenant passed away XXXX and the beneficiaries were not absolutely entitled to their share of the assets in their satisfaction of their entitlement as this would exclude the other of that specific number of the trust's post death assets. The assets are fungible but it is not clear from the terms of the will whether or not it was intended that one half of the total number of assets be set aside for each of the daughters exclusively. Further, the will provides the Trustee with the power to appropriate and partition any real or personal property forming part of the estate to or towards the share of any beneficiary. Accordingly, CGT event E5 did not occur. | Q2: Is the estate a fixed trust following the death of the life tenant? | A2: Yes. Section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) provides that a trust is a 'fixed trust' if persons have fixed entitlements to all of the income and capital of the trust. Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a trust is a fixed trust if entities have fixed entitlements to all of the income and capital of the trust. In this case, there are no contingencies that exist by which the beneficiaries could lose their interests in the trust and they are each entitled to a 50% share of the residuary of the estate. Therefore the beneficiaries each have a vested and indefeasible interest in the income and capital of the estate. As such the Estate is a fixed trust.

Relevant facts and circumstances: The deceased died in 20XX and left a will and was an Australian resident for taxation purposes. Probate was granted in 20XX. An executor was appointed in 20XX. The deceased's will created a life interest in the income of the deceased's residuary estate for their spouse and upon trust to pay or transfer the residuary estate to such of their children in equal shares (beneficiary A and beneficiary V). The deceased's spouse (life tenant) passed away in 20XX and was an Australian resident for taxation purposes. Pursuant to the will, the Trustee has the power to appropriate and partition any real or personal property forming part of the estate to or towards the share of any beneficiary or beneficiaries under the will. The post death assets comprised of different investments and constituted non-taxable Australian property. Beneficiary A is an Australian resident for taxation purposes and beneficiary V is a non-resident for taxation purposes. To satisfy the requirements under the deceased's will, the trustee is proposing to transfer the assets of the deceased's estate to the beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 95A(2) | Income Tax Assessment Act 1936 Section 272-5 of Schedule 2F | Income Tax Assessment Act 1936 Subsection 272-5(1) of Schedule 2F | Income Tax Assessment Act 1936 Subsection 272-5(3) of Schedule 2F | Income Tax Assessment Act 1936 Section 272-65 of Schedule 2F | Income Tax Assessment Act 1997 Section 104-75 | Income Tax Assessment Act 1997 Section 855-15 | Income Tax Assessment Act 1997 Section 855-40 | Income Tax Assessment Act 1997 Subsection 855-40(2) | Income Tax Assessment Act 1997 Subsection 855-40(2)(a) | Income Tax Assessment Act 1997 Subsection 855-40(2)(b)(i) | Income Tax Assessment Act 1997 Subsection 855-40(2)(c)(i) | Income Tax Assessment Act 1997 Subsection 955-1(1)