Mr. Smith is thinking about including the establishment of a testamentary trust in his will, but he is not
sure whether there would be a CGT event
a) when the assets are transferred from his estate to the testamentary trust, and
b) when the trust vests (terminates in several years later) and the assets are transferred to the
beneficiary (or beneficiaries).
What’s the CGT consequences for the above two events?
Section 128-15 ITAA 1997 sets out any capital gain or loss made from a CGT event is disregarded if it
is triggered because an asset passes from a deceased estate to a beneficiary of the estate in certain
circumstances, including where it passes under the terms of the deceased individual’s will.
PS LA 2003/12 sets out the ATO’s view that a testamentary trust will be treated in the same way as a
deceased estate for the purpose of these rules.
Assuming: The testamentary trust was established under the terms of Mr. Smith’s will, and his
properties passed from him to the testamentary trust under Mr. Smith’s will, and then, the properties
passes to a beneficiary of the trust in accordance with the will.
Result: it should be possible to ignore any capital gain or loss made as a result of this (assuming the
beneficiary is a resident individual).
Likewise, any capital gain or loss that would have arisen when the asset passes from the estate to the
testamentary trust should generally be disregarded as the trust is treated as if it was a continuation
of the estate for certain CGT purposes.