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Edited version of your private ruling
Authorisation Number: 1012606588194
Ruling
Subject: CGT - deceased estate - shares transfer to deductible gift recipient
Question:
Do you make a capital gain or capital loss on the transfer of shares by the executor to X?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts:
The deceased passed away in the 200X income year.
The deceased left a will and probate was granted in the 200Y income year.
The deceased will named X as a beneficiary.
The deceased held a number of shares that were acquired prior to 20 September 1985 in a private company.
The shares held in the private company were transmitted into the name of the executor in the 200Y income year.
The shares were transferred into the name of X in the 20XX income year.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 30-15
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-215
Income Tax Assessment Act 1997 Section 104-230
Income Tax Assessment Act 1997 Section 106-50
Income Tax Assessment Act 1997 Section 118-60
Income Tax Assessment Act 1997 Section 128-10
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision:
The Income Tax Assessment Act 1997 (ITAA 1997) contains a number of provisions that will be relevant in working out whether income tax is payable if a deceased person acquired shares in a private company before 1985, and the shares pass to the executor of the deceased estate and then on to a beneficiary of the deceased estate.
These provisions include:
• Section 104-10 of the ITAA 1997 about CGT event A1 happening when a CGT asset is transferred from one person to another
• Section 104-230 of the ITAA 1997 about CGT event K6 happening when the transferred asset is pre-85 shares in a company that has acquired post-85 assets.
Generally when a person dies their assets pass directly to their beneficiary or to the executor of the deceased estate for administration. CGT event A1 happens.
CGT event K6 in section 104-230 of the ITAA1997 will only happen if the following conditions are satisfied:
• A specific CGT event happens in relation to shares in a company or an interest in a trust you acquired pre CGT
• There is no rollover for the other CGT event; and
• Immediately before the other event happens, the market value of the post CGT asset property of the company or trust is at least 75 per cent of the net value of the company or trust.
In particular, CGT event K6 will not happen if a rollover is available for the other CGT event.
Division 128 of the ITAA1997 operates as a rollover provision and disregards any capital gain or capital loss from a CGT event that results from a CGT asset that a taxpayer owns just before dying (section 128-10 of the ITAA1997)
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 shares passed to X 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:
• be made to a deductible gift recipient that is in Australia
• satisfy any gift conditions affecting the types of deductible gifts the recipient can receive, and
• 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 property and cash had it been made during their lifetime because:
• the gift was made to a DGR
• for that deductible gift recipient there were no gift conditions affecting the types of deductible gifts it could receive that needed to be satisfied, and
• the shares are property valued at greater than $5,000.
Accordingly, any capital gain made from CGT event K3 happening is disregarded.
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