1 Will the Commissioner treat the trustee of the Trust A in the same way as a legal personal representative for the purpose of subsection 128-15(3) of the Income Tax Assessment Act 1997 (ITAA 1997), in accordance with Law Administration Practice Statement PS LA 2003/12?
Yes. Question 2 Will the Commissioner treat the trustee of Trust B in the same way as a legal personal representative for the purpose of subsection 128-15(3) of the ITAA 1997, in accordance with Law Administration Practice Statement PS LA 2003/12? Answer No. Question 3 Will any capital gain or loss that may arise if assets are transferred from Trust A to beneficiaries of the trust be disregarded when transferred? Answer Yes. Question 4 Will any capital gain or loss that may arise if assets are transferred from the Trust B to beneficiaries of the trust be disregarded when transferred? Answer No. This ruling applies for the following period : Year ended 30 June 20XX The scheme commences on: 1 July 20XX
The deceased died in 20XX leaving a will dated several months before their death. Probate was granted some months later. Clause X of the Will directed the Executor to hold the residuary estate on Trust A. There is a sole beneficiary to Trust A. Clause X and Clause X of the will give the executor discretionary power to distribute the residuary estate either directly to the beneficiary in their personal capacity and/or through a testamentary trust of which they are a beneficiary. For this purpose the trustee established Trust B.
Income Tax Assessment Act 1997 Subsection 118-15(3)
PSLA 2003/12 confirms the Commissioner's longstanding administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative for the purposes of Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997), in particular subsection 128-15(3). Broadly stated, the ATO's practice is to not 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 legal personal representative or testamentary trustee to a third party or CGT event K3 applies). The cost base and reduced cost base of the asset in the hands of the beneficiary is calculated in the same way as it would have been if the asset had passed to them from the deceased's legal personal representative.
If the deceased acquired the asset before 20 September 1985 (that is, pre-CGT) the acquisition cost will be equal to the market value at the date of the deceased's death. If the deceased acquired the asset on or after 20 September 1985, the beneficiary's acquisition cost will be determined in accordance with items 1, 2, 3 or 3A of the table in subsection 128-15(4) of the ITAA 1997. Trust A was created under the will and is a testamentary trust. The Trustee of Trust A will be treated as a legal personal representative for the purpose of subsection.128-15(3). Any CGT arising from the transfer of any assets from Trust A to a beneficiary or to another trust will be disregarded. Trust B was not created under the will. Trust B was established by the Trustee of Trust A. The Trustee of Trust B will not be treated as a legal personal representative for the purpose of subsection 128-15(3). Any CGT that arises from the transfer of assets from Trust B to any beneficiary or to another trust will not be disregarded. The below example from PS LA 2003/12 is similar to your circumstances. Example 2
Mr Smith died in 2001. At that time, he owned a variety of assets acquired after 19 September 1985. His will provides that the assets are to be held by the trustee of a trust created under his will. The trustee can distribute those assets at his absolute discretion among a wide range of objects including trustees of various trusts. In 2012, the trustee of the testamentary trust validly transferred some of the assets to Mr Smith's children and some to the trustee of another trust. The Commissioner accepts that the transfers did not result in a CGT event happening to the trustee of the testamentary trust if the beneficiaries agree that their acquisition cost for the assets is equal to the trustee's cost base. In 2014, the trustee of the beneficiary trust (itself a discretionary trust) transfers one of the assets to one of its beneficiaries. CGT event A1 happens at the time of the transfer. No CGT event happens when the assets transfer from Trust A to Trust B if the beneficiary agrees that the assets have an acquisition cost equal to Trust A's cost base. CGT event A1 occurs when the trustee of Trust B transfers any of these assets to the beneficiary.