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Edited version of your written advice

Authorisation Number: 1012700399464

Ruling

Subject: Capital gains tax

Question 1

Is a testamentary gift of the residue of the estate a gift of property that would have been deductible under section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997) had it not been given by a testamentary trust?

Answer

Yes.

Question 2

Are the capital gains/losses made from capital gains tax (CGT) event K3 happening to shares, other investments and real estate disregarded?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

The deceased passed away.

The Last Will and Testament instructed that the residue of the estate be given to an endorsed DGR.

There are no powers or provisions contained in the Will which allow for the executor to sell, call in and convert into cash any non-cash assets forming the estate.

The assets of the estate comprise an extensive share and investment portfolio both in Australia and overseas as well as cash, real estate and motor vehicle.

The valuation for the real estate has been provided by a registered property valuer.

The valuations for the shares and other financial investments are based on the market value of the respective holdings as at the date of death.

All assets comprising the residuary estate are to be transferred in specie to the DGR

The value of the residue of the estate is in excess of $5,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 subsection 30-15(2)

Income Tax Assessment Act 1997 Division 50

Income Tax Assessment Act 1997 subsection 995-1

Reasons for decision

Question 1

You may deduct a gift or contribution that is made in the situations set out in the table contained within section 30-15 of the ITAA 1997. 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.

Subsection 30-15(2) of the ITAA 1997 states that a testamentary gift or contribution is not deductible under this section.

In this case, the gift (residue of the estate) was made to a DGR, there were no gift conditions and it was valued at more than $5000. Therefore, the gift would have been deductible had it not been made by a testamentary trust.

Question 2

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 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.

As discussed in question 1, the gift of the residue of the estate would have been deductible had it not been made by a testamentary trust. Accordingly, any capital gain or capital loss made from CGT event K3 happening is disregarded.

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