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Edited version of your private ruling
Authorisation Number: 1012549992770
Ruling
Subject: Capital gains tax (CGT) - sale of farming property by deceased estate
Question
Will the sale of the farming property be subject to capital gains tax (CGT)?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
The deceased passed away some time prior to 20 September 1985. Probate was granted a period of time later.
The principal asset of the Estate comprised a farming property.
The deceased's Will provided that the farming property be conveyed to the beneficiaries being the deceased's children in approximate equal interests.
It is necessary to amalgamate titles and to subsequently subdivide such that the property can be conveyed pursuant to the directions in the Will.
This has not occurred and the administration of the Estate as such remains incomplete.
The executors of the Estate named in the Will were the deceased's children and two other people.
The executors of the Estate passed away some time later.
A Supreme Court order was made some time later making the beneficiaries of the executors Estate's, executors of the original Estate. As part of this order the newly appointed executors were placed on the titles of the farming property.
In the relevant income year the substituted Executors negotiated a contract of sale for a major area of the farming property.
The property has passed through the generations of the family and was used by the deceased and their ancestors for agricultural purposes. The property continues to be used for agricultural purposes with the Estate deriving passive rental income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 104-10(5),
Income Tax Assessment Act 1997 Section 149-10,
Income Tax Assessment Act 1997 Section 149-30,
Income Tax Assessment Act 1997 Subsection 149-30(3) and
Income Tax Assessment Act 1997 Subsection 149-30(4).
Reasons for decision
Essentially, a CGT asset acquired before 20 September 1985 remains a pre-CGT asset if the majority underlying interests in the asset has not changed since 20 September 1985. Where a change in majority underlying interest occurs, the CGT asset is deemed to be acquired after 19 September 1985, under either Division 20 of the Income Tax Assessment Act 1936 (ITAA 1936) (pre 1998-99 income year) or Division 149 of the Income Tax Assessment Act 1997 (ITAA 1997).
Under section 149-30 of the ITAA 1997, an asset stops being a pre-CGT asset at the earliest time when the majority underlying interests in the asset were not held by the ultimate owners who held majority underlying interests in the asset immediately before 20 September 1985.
Subsections 149-30(3) and 149-30(4) of the ITAA 1997 provide that, if an ultimate owner (new owner) has acquired an interest in an asset because it was transferred to the new owner because of the death of a person (former owner), the 'new owner' is treated as having held the underlying interest of the 'former owner' for the period the 'former owner' held them.
In your situation, the deceased passed away prior to 20 September 1985. Under the Will the farming property was left to their children. The Will also made provision that should their children pass away, the farming property would be left to their grandchildren.
Administration of the Estate has not occurred and remains incomplete. The deceased's children, who held the majority underlying interest in the farming property, have now passed away. A number of the beneficiaries of the deceased's children's Estates have now become executors of the original Estate by way of order of the Supreme Court.
In your application for a private ruling, you have made reference to ATO ID 2003/779 as potentially applying to your circumstances. The Commissioner agrees that ATO ID 2003/779 applies to your situation and that the beneficiaries of the Estate of the deceased's children have at all times had an interest in the original Estate albeit indirectly.
Therefore the Commissioner is satisfied that the majority of the underlying interests in the farming property have not changed since 20 September 1985. Accordingly section 149-30 of the ITAA 1997 has no application and the farming property has retained its pre-CGT status and any capital gain made on its disposal is disregarded.
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