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Edited version of private ruling
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Ruling
Subject: Capital gains tax - deceased estate - deed of family arrangement
Question
Is any capital gain or capital loss assessable to the estate on a transfer of property to the deceased's spouse under a deed of family arrangement?
Answer
No.
This ruling applies for the following period:
1 July 2010 - 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
The deceased died during the relevant income tax year.
At the date of death the deceased owned a quantity of land, consisting of a house and sheds (the property).
By their will the deceased left the property to their spouse for life and on death to some of their children, on the condition that they pay a percentage of the properties value to one other child.
The family will enter into a deed a family arrangement so that the land is transferred into the deceased's spouse name outright.
Assumptions
The deed of family arrangement will be entered into prior to the administration of the estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 128-15(3) and
Income Tax Assessment Act 1997 Section 128-20.
Reasons for decision
Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) operates when a capital gains tax (CGT) asset owned by a person just before death passes to the deceased's legal personal representative or to a beneficiary in the deceased's estate.
Any capital gain or capital loss made by the deceased estate when the asset passes to a beneficiary is disregarded.
Subsection 128-20(1) of the ITAA 1997 explains that a CGT asset passes to a beneficiary in the estate of a deceased person if the beneficiary becomes the owner of the asset in any of the following ways:
(a) under a Will of the deceased, or that will as varied by a court order;
(b) by operation of an intestacy law, or such a law as varied by a court order;
(c) because it is appropriated to the beneficiary by the deceased's legal personal representative in satisfaction of a pecuniary legacy or some other interest or share in the deceased's estate; or
(d) under a deed of arrangement if:
i) the beneficiary entered into the deed to settle a claim to participate in the distribution of the deceased's estate; and
ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of the deceased's estate.
It does not matter whether the asset is transmitted directly to the beneficiary or is transferred to the beneficiary by the deceased's legal personal representative.
In this case, the requirements of paragraph 128-20(1)(d) of the ITAA 1997 have been satisfied in that:
- the beneficiaries entered into a deed of family arrangement to revoke their interests in the property in favour of the property being transferred to the life tenant as listed by the will.
Therefore, the asset will in effect pass to a beneficiary and any capital gain or capital loss that the deceased's estate makes on the transfer is disregarded.
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