The Australian Taxation Office (ATO) updated its Practice Statement PS LA 2003/12 on 10 April 2014. The Practice Statement confirms that the Commissioner will not depart from the long-standing administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative (LPR). 

As a consequence, any capital gains tax (CGT) liability that arises when a taxpayer dies, and a CGT asset owned by the taxpayer just before death, passes to the trustee of a testamentary trust (being a trust established under the deceased taxpayer’s will), and then from the testamentary trust to a beneficiary of the testamentary trust, will be disregarded.

Additionally, the cost base and reduced cost base of the asset that has passed to the beneficiary from the testamentary trust will be determined by reference to the cost base and reduced cost based of the asset when it passed to the LPR. Generally for pre-CGT assets, this is the market value of the asset on the date of the deceased taxpayer’s death, and for post-CGT assets, it is the cost base or reduced cost base of the asset on the date of the deceased taxpayer’s death.

For more information on establishing a testamentary trust for tax-effective estate planning and asset protection, please contact Renuka.

Renuka Somers
Senior Associate
03 9611 0110
rsomers@sladen.com.au

Daniel Smedley
Principal
03 9611 0105
dsmedley@sladen.com.au