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Edited version of your private ruling
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Ruling
Subject: Capital Gains Tax (CGT)
Question
Can you disregard any capital gain or capital loss made from CGT event K3?
Answer:
Yes
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
The executor of the Estate is in the process of distributing the assets of the estate according to the will. The sole beneficiary of the estate is a DGR.
The sole beneficiary has requested that shares and investments held by the deceased be transferred in specie to the DGR
The value of the shares and investments is in excess of $5,000.
No conditions were attached to the transfer.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 995-1(1)
Income Tax Assessment Act 1997 section 30-15
Reasons for decision
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.
Where the asset devolves to the executors of the estate or passes to a beneficiary of the deceased estate the executor or beneficiary is taken to have acquired the asset on the day the person died. Any capital gain or capital loss the executor makes if the asset passes from the executor to the beneficiary 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 portfolio of shares passed to the DGR who at that time was 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:
· be made to a DGR that is in Australia
· satisfy any gift conditions affecting the types of deductible gifts the recipient can received
· be property that is covered by one of the listed gift types.
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 shares had it been made during their lifetime because:
· the gift (share portfolio) was made to a deductible gift recipient
· for that deductible gift recipient there were no gift conditions affecting the types of deductible gifts it could received that needed to be satisfied
· the shares are property valued at greater than $5,000.
Accordingly, any capital gain or capital loss made from CGT event K3 happening is disregarded.
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