Issue
Does CGT event E6 in section 104-80 of the Income Tax Assessment Act 1997 (ITAA 1997) happen if the trustee of a testamentary trust transfers to an income beneficiary of the trust, an estate of freehold for life in a property owned by a deceased person?
Decision
No. Because the land was owned by the deceased person, the exception in subsection 104-80(1) of the ITAA 1997 will apply and CGT event E6 will not happen.
Facts
An individual acquired an interest in a property before 20 September 1985. The individual died during the 1996 income year.
The will of the deceased individual provided that the property was to be held upon trust to pay income to their spouse (the taxpayer) for life with the remainder to their two children.
It is proposed to bring the trust to an end. The trustees of the testamentary trust will transfer an estate of freehold for life to the taxpayer and an estate in remainder to the two children.
Reasons for Decision
CGT event E6 in section 104-80 of the ITAA 1997 happens if the trustee of a trust disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's right, or part of it, to receive income from the trust. If CGT event E6 happens there are consequences for the trustee and the beneficiary of the trust.
There is an exception if the trust is a trust of an asset to which Division 128 of the ITAA 1997 applies. That is, CGT event E6 will not happen if the asset transferred by the trustee was owned by the deceased individual at the time they died.
Although the deceased did not separately own the life interest which is being transferred to the taxpayer, it formed part of their total ownership interests in the land and accordingly CGT event E6 will not happen when an estate of freehold for life in the property is transferred to the taxpayer. This is consistent with the approach that would be adopted if an asset owned by a person passed to two or more beneficiaries as tenants in common.