Private ruling: Deceased estates - absolute entitlement
Date of advice: 1 September 2025
Published: 3 November 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: Will a CGT event happen to the Trustee on sale of the Property? | A1: Yes. | Q2: Can the Trustee disregard the capital gain or loss on the sale of the Property? | A2: No. | Q3: Is the Trustee entitled to a partial main residence exemption on the sale of the Property? | A3: Yes. | Q4: Is the first element of the cost base in the hands of the Trustee the market value of the Property at the date the deceased died? | A4: Yes.

Relevant facts and circumstances: After 20 September 1985, the deceased purchased the Property. The Property is less than 2 hectares. The Property was the deceased main residence and not used to produce income. Person A was the deceased's child. In or around XXXX 20XX, the deceased executed their last Will and testament. The Will appointed Person B (the Executor) executor of the estate. Clause X of the Will states: I [the deceased] give the Rest of My Estate to my Executor to pay to the Trustee, in his or her capacity as trustee, of the testamentary trust established in clause 3.1 [the Testamentary Trust] for the benefit of Person A (the Main Beneficiary). The Property is included in the 'Rest of My Estate'. Clause X of the Will states: Where a beneficiary is the prescribed age or older and designated as the Main Beneficiary of a trust, that beneficiary may request the Executor not to distribute all or any part of the share of my estate to the trust, but instead distribute it to the Main Beneficiary in his or her in her personal capacity. Clause X of the Will states: If any of the beneficiaries named or described above do not survive me by 30 days or die before they reach the prescribed age, the gift is to be distributed proportionally to the surviving beneficiaries [Person B and Person C] of the Rest of my Estate. Clause X of the Will states: 'My Executor is to continue as Trustee' [of the Testamentary Trust.] Clause X of the Will states: 'Prescribed age means, in the case of each beneficiary, XX years of age.' Person A will reach the prescribed age on XX XXXX 20XX. On XX XXXX 20XX, the deceased passed away. They were an Australian tax resident. Person C is Person B parent but was not the deceased's spouse just before the deceased's death. The title of the Property transferred to the Trustee as trustee of the Testamentary Trust. For a period after the deceased passed, the Property was used to produce income. The net income from the Property was distributed to Person A in the income years ended 30 June 20XX, 20XX, 20XX, 20XX, 20XX and 20XX. The annual gross rental income is around $XX. From XX XXXX 20XX, Person A and Person C moved into the Property as their main residence. The Trustee will sell the Property before Person A reaches the prescribed age.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 118-200 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 section 128-20

Reasons for decision: Summary: As the owner of the property, CGT event A1 will happen to the Trustee on its sale. | Detailed Reasoning - Detailed reasoning: Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. Practice Statement Law Administration PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust , explains the trustee of a testamentary trust is treated in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997. Tax Determination TD 2004/3 Income tax: capital gains: does an asset 'pass' to a beneficiary of a deceased estate under section 128-20 of the Income Tax Assessment Act 1997 if the beneficiary becomes absolutely entitled to the asset as against the trustee of the estate ? determines the owner of a deceased estate asset for CGT purposes. Paragraph 1 of TD 2004/3 states: An asset will 'pass' to the beneficiary of a deceased estate when the beneficiary becomes absolutely entitled to the asset as against the estate's trustee (whether or not the asset is later transmitted or transferred to the beneficiary). Paragraph 2 of TD 2004/3 states: A CGT asset owned by a deceased person at the time of their death passes to a beneficiary of the deceased's estate if the beneficiary becomes the owner of the asset under the will or in one of the other ways set out in subsection 128-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997). From this, we can conclude that the relevant owner of a CGT asset is the Trustee when the asset has not passed to the beneficiary and no beneficiary is absolutely entitled to the asset. 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 explains when an absolutely entitled beneficiary (rather than the trustee) is treated as the relevant owner of a CGT asset. Paragraph 10 of TR 2004/D25 provides the core principle of absolute entitlement. It 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. Paragraph 14 of TR 2004/D25 states: 'a beneficiary with an interest in the trust's assets cannot be absolutely entitled if that interest is contingent or defeasible (see Explanation paragraphs 73 to 75). Paragraph 22 of TR 2004/D25 states: ...a beneficiary will be absolutely entitled to that asset as against the trustee for the purposes of the CGT provisions if the beneficiary can (ignoring any legal disability) terminate the trust in respect of that asset by directing the trustee to transfer the asset to them or to transfer it at their direction (see Explanation paragraphs 76 to 79). Paragraph 74 of TR 2004/D25 states: 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. Paragraphs 149 to 151 of TR 2004/D25, provides an example of a beneficiary with a defeasible interest: | Detailed Reasoning - Example 1: defeasible interest: 149. In her will Mary directed that her bank shares be held on trust for her daughter Megan until she reached 25 years, but if Megan were to die before that time, the shares were to be transferred to Mary's nephew, Peter. 150. When Mary died, Megan was aged 17 years. The existence of the gift over in favour of Peter should Megan not reach 25 years, means that Megan's interest in the trust assets is defeasible. Therefore, until Megan turns 25, she is not absolutely entitled to the shares. The trustee (and not Megan) is the relevant taxpayer in respect of any capital gain or loss made on the disposal of the shares. 151. When Megan turns 25, she will become absolutely entitled to the shares and Megan (and not the trustee) will be the relevant taxpayer in respect of any capital gain or loss made on their disposal. Because the trust is a testamentary trust, CGT event E5 will not happen when Megan becomes absolutely entitled to shares Mary owned just before she died. However, CGT event E5 will happen if Megan becomes absolutely entitled to any shares acquired by the trustee after Mary's death. | Detailed Reasoning - Application to your circumstances: The Trustee owns the Property as trustee of the Testamentary Trust until it passes under the Will to Person A or they become absolutely entitled when they reach the prescribed age. Under section 128-20 of the ITAA 1997, the ownership interest in the Property will not pass to Person A under the Will until they reach the prescribed age. Therefore, Person A is not absolutely entitled to the Property because their interest is defeasible until they reach the prescribed age. As the owner of the property, CGT event A1 will happen to the Trustee on its sale. | Summary: The Trustee does not meet the requirements of section 118-195 of the ITAA 1997 to disregard the capital gain or loss on the sale of the Property. | Detailed Reasoning - Detailed reasoning: Section 118-195 of the ITAA 1997 provides if you own a dwelling as the trustee of a deceased estate, you can disregard the capital gain or loss you make on the disposal of the property if: • The property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and • Your ownership interest ends within 2 years of the deceased's death, or a longer period allowed by the Commissioner; or • One of the following items in column 3 of the table under subsection 118-195(1) of the ITAA 1997 applies. The dwelling was, from the date of the deceased's death until your ownership period ends, the main residence of one or more of: - The spouse of the deceased just before they passed (not including a spouse that was living permanently separately and apart); or - An individual with a right to occupy the dwelling under the deceased's will; or - The individual to whom the ownership interest passed as a beneficiary if that individual also brings about the CGT event. | Detailed Reasoning - Application to your circumstances: The Trustee will not sell the Property within 2 years of the deceased's death and it was not the main residence of any of the individuals listed above after their death. Therefore, the Trustee has not met the requirements of section 118-195 of the ITAA 1997 to disregard the capital gain or loss on the sale of the Property. | Summary: The Trustee is entitled to a partial main residence exemption on the sale of the Property. | Detailed Reasoning - Detailed reasoning: Section 118-200 of the ITAA 1997 considers eligibility for a partial exemption for the sale of a deceased estate dwelling when you are not eligible for a full exemption under section 118-195 of the ITAA 1997. You calculate your capital gain or capital loss using the formula set out in subsection 118-200(2) of the ITAA 1997: Table 1 CG or CL amount × Non-main residence days Total days non-main residence days is the sum of: (a) If the deceased acquired the ownership interest on or after 20 September 1985 - the number of days in the deceased's ownership period when the dwelling was not the deceased's main residence; and (b) The number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195. total days is: (a) If the deceased acquired the ownership interest before 20 September 1985 - the number of days in the period from the death until your ownership interest ends; or (b) If the deceased acquired the ownership interest on or after that day - the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends. | Detailed Reasoning - Application to your circumstances.: You will not be eligible for a full main residence exemption on the sale of the property. However, you will be eligible for a partial main residence exemption. You will not be able to claim the main residence exemption for the period from XX XXXX 20XX to the date the Property is sold. This period will form the non-main residence days. Furthermore, you will be entitled to apply the 50% discount when calculating the capital gain as you have held your ownership interest for more than 12 months. | Summary: The first element of the cost base in the hands of the Trustee is the market value of the Property at the date the deceased died. | Detailed Reasoning - Detailed reasoning: Practice Statement Law Administration PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust , explains the trustee of a testamentary trust is treated in the same way as a legal personal representative for the purposes of Division 128 of the ITAA 1997. The cost base and reduced cost base of the asset in the hands of the Trustee is calculated in the same way as if the deceased's legal personal representative disposed the property. As the deceased acquired the asset on or after 20 September 1985, the Trustee's acquisition cost will be determined in accordance with table items 1, 2, 3 or 3A of subsection 128-15(4) of the ITAA 1997. Under item 3 of subsection 128-15(4) of the ITAA 1997, the first element of the cost base in the hands of the Trustee will be the market value of the property at the date the deceased died.