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Edited version of your private ruling

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Ruling

Subject: Capital gains tax - deceased estate - beneficiary - deductible gift recipient

Question:

Is the capital gain made on the passing of the unit to the deductible gift recipient (DGR) disregarded?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased acquired a unit in Australia (the unit) in the late 1990's.

The deceased died this year.

The deceased had two wills, one will (will one) was for their asset in a foreign country and another will (will two) for their assets in Australia and other parts of the world.

You are the trustee for will two and an employee of an Australian deductible gift recipient (DGR).

The deceased's home was situated in a foreign country.

The deceased came to Australia on an annual basis and lived in the unit for a number of months before returning to their home in a foreign country.

Under the deceased's will two the sole beneficiary is an Australian DGR.

The estate consists of the unit and cash.

Under the deceased's will one they left their foreign country assets to specified beneficiaries and their home to their surviving siblings.

Inheritance tax is payable on both the deceased's Australian and foreign country assets in their home country.

The unit will be disposed of.

You have supplied copies of the following documentation to support your application and these documents are to be read with and forms part of the scheme for the purpose of this ruling:

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-215

Income Tax Assessment Act 1997 Section 128-10

Income Tax Assessment Act 1997 Section 128-15

Income Tax Assessment Act 1997 Section 118-60

Income Tax Assessment Act 1997 Section 30-15

Income Tax Assessment Act 1997 Section 106-50

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Generally, when a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset the person owned just before death is disregarded.

 However, CGT event K3 happens if a CGT asset owned by a deceased person just before they die passes to a beneficiary of their estate who is an exempt entity. CGT event K3 is taken to happen just before the deceased's death.

 An exempt entity is one whose ordinary and statutory income is exempt from income tax because of Division 50 of the Income Tax Assessment Act 1997 (ITAA) (subsection 995-1(1) of the ITAA 1997).

 In your situation, CGT event K3 happened as the unit passed to the Australian DGR and they are an exempt entity.

 However, a capital gain or capital loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 of the ITAA 1997 had it not been a testamentary trust.

 The table in section 30-15 of the ITAA 1997 sets out who the recipient of the gift can be, the type of gift you can make, how much you can deduct and any special conditions that apply.

 Item 1 of the table sets out one of the situations in which a gift can be deducted. Under that item a gift of property must:

 The gift types include property valued by the Commissioner at more than $5,000.

Therefore, the deceased would have been entitled to a deduction for the gift of property and cash had it been made during their lifetime because: 

Accordingly, any capital gain made from CGT event K3 happening is disregarded.

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