Division 128 of the Income Tax Assessment Act 1997 provides tax rollover where CGT assets that the deceased held immediately before their death get transferred to their Legal Personal Representative or are passed to the beneficiaries of their estate. In PS LA 2003/12, the ATO state that they will also seek to apply tax rollover relief where assets held by the deceased at the date of their death are transferred into a testamentary trust or are transferred from a testamentary trust to its beneficiaries.
In considering the scope of the tax rollover afforded by Division 128 and PS LA 2003/12, it needs to be remembered that the rollovers are limited to assets held by the deceased immediately prior to their death.
Therefore, by way of example, if the assets of the deceased incorporated a bank account and the bank account was transferred into a testamentary trust that was established under the will of the deceased, if the testamentary trust subsequently used the bank account balance to purchase a share portfolio, tax rollover would not apply pursuant to PSLA 2003/12 if the share portfolio was subsequently transferred in-specie to a beneficiary of the testamentary trust at some future point in time. This is because the share portfolio was not a CGT asset of the deceased immediately before their death.
The same outcome as above would also apply for example if additional shares were received by the Legal Personal Representative or trustee of the testamentary trust under a dividend reinvestment plan. As those additional shares acquired would not have been held by the deceased at the date of their death, tax rollover would not be available where those additional shares are transferred in-specie to a beneficiary.
In conclusion, when assets in a deceased estate or testamentary trust pass to a beneficiary of the trust, careful consideration should be given as to whether the transfer of the assets does in fact qualify for CGT rollover. With assets such as a share portfolio, this may become quite a complicated exercise.
If you have any further questions, please do not hesitate to contact Tim Olynyk on (03) 9810 0700 or firstname.lastname@example.org.