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Ruling
Subject: Capital gains tax - deceased estate - disclaim of interest
Question: Did a capital gains tax (CGT) event occur when you disclaimed your interest in your late spouse's property?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
In 200X your spouse died (the deceased).
Under the deceased's Will their children were the beneficiaries of their estate.
Also, under the deceased's Will you also had a life interest in a property (the property) the deceased owned.
At the time of the deceased's death you decided that her children should have the property, so you disclaimed your interest in it.
You have never resided in the property after the deceased's death.
Last year the deceased's children disposed of the property.
The deceased's children paid the CGT and distributed the remaining proceeds equally between themselves.
You did not receive any monies or other benefits from the property prior to or after its disposal.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 128-10
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
A CGT asset is any kind of property or a legal or equitable right that is not property.
You only make a capital gain or capital loss if a CGT event happens to an asset that you own.
Deceased estate - life interest
The creation of equitable life and remainder interests involves the creation of trust over an original asset.
In your situation, the relevant asset is the property.
As the trust was created as a result of the death of an individual, the trustee or beneficiaries are taken to have acquired the property on the deceased's date death.
Disclaiming a life interest
If a life interest makes an effective disclaimer in their interest of a deceased's asset, no CGT event occurs.
An effective disclaimer must be intentional and show unequivocally that the nominated life interest rejects their interest. The right to disclaim is lost if that person has engaged in positive conduct indicating an acceptance of their interest. The right may also be lost if it is not exercised within a reasonable time, in that someone who remains silent beyond the time when they may be expected to disclaim the interest may be presumed to have accepted it. If a life interest disclaims their interest, they are retrospectively disentitled to it.
Where the life interest is disclaimed, the disclaimer has the effect of leaving the beneficiary or beneficiaries with the entire fee simple and results in the ending of the testamentary trust.
Under the deceased's Will you were given a life interest in the property. At the time of the deceased's death you made an effective disclaimer of your interest in the property.
Therefore, no CGT event occurred so you are not liable for CGT.
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