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Edited version of your written advice
Authorisation Number: 1012718688145
Ruling
Subject: Testamentary gift to deductible gift recipient
Question 1
Will capital gains tax (CGT) event K3 occur when you transfer a portfolio of shares to the residual beneficiary, who is a public university and deductible gift recipient (DGR)?
Answer
Yes.
Question 2
Will the capital gains or capital loss made on the transfer of the shares be disregarded under subsection 118-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The deceased passed away.
As per their will, the university is the residuary beneficiary of the estate.
The university expressed a preference to receive a transfer of the portfolio of public company shares.
The portfolio of public company shares has a market value of more than $5,000.
The share portfolio is a post-CGT asset.
The university is a public university and is registered as a deductible gift recipient (DGR).
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 30-15
Income Tax Assessment Act 1997 (ITAA 1997) section 30-25
Income Tax Assessment Act 1997 (ITAA 1997) section 104-215
Income Tax Assessment Act 1997 (ITAA 1997) section 118-60
Reasons for decision
As per section 104-215(1) of the ITAA 1997, a 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.
In this case, the CGT asset is a portfolio of shares in a publicly listed company. As per the deceased's will, the residual beneficiary of the estate is the university. This beneficiary is a public university which is a tax exempt entity. Therefore a CGT event K3 will happen to the share portfolio held in the estate when it is transferred to the university.
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 gift.
The table in section 30-15 of the ITAA 199 sets out who the recipient 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 the share portfolio had it been made during their lifetime because:
• the university is an educational institution and deductible gift recipient
• there were no gift conditions affecting the types of deductible gifts the university could receive that needed to be satisfied, because the university is a public university, and
• the shares are property worth more than $5,000.
A deduction would not be allowable if the property is not valued by the Commissioner at more than $5,000. However, because this is a testamentary gift, subsection 118-60(IA) of the ITAA 1997 will deem the property to have been valued by the Commissioner at more than $5,000.
Accordingly, any capital gain from a CGT event K3 happening is disregarded.
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