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Edited version of your written advice
Authorisation Number: 1012724192229
Ruling
Subject: Taxation of shares transferred from deceased estate
Question
Can capital gains tax (CGT) on the transfer of shares to beneficiaries by a deceased estate be paid by the estate and then the shares transferred to the beneficiaries at market value on the date of death?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
The deceased passed away during the year ended 30 June 20XX. Their estate included shares in listed public companies which were acquired post 19 September 1985. The will directs you, the trustee, to distribute the shares equally to two beneficiaries. During the relevant year all of the shares were transferred to the beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 110-10
Income Tax Assessment Act 1997 Section 110-20
Income Tax Assessment Act 1997 Section 104-5
Income Tax Assessment Act 1997 Section 128-10
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens when a CGT asset owned by a deceased person devolves to their legal personal representative or passes to a beneficiary in their estate.
The provisions in Division 128 of the ITAA 1997 that apply to your case are:
• Section 128-10, which provides, when a person dies, a capital gain or capital loss from a CGT event that results for a CGT asset they owned just before dying is disregarded.
• Item 1 of subsection 128-15(4), which provides, for assets in general, that if a deceased person acquired an asset on or after 20 September 1985, the legal personal representative or beneficiary is taken to have acquired it at the cost base of the asset on the day of the deceased person's death.
• Subsection 128-15(3), which provides, if the asset in the deceased estate passes to a beneficiary, any capital gain or capital loss the legal personal representative makes is disregarded.
In your case, due to section 128-15 of the ITAA 1997, any capital gain or loss made by a legal personal representative on transfer of the assets of the deceased estate to the beneficiaries, as provided by the will, will be disregarded. Therefore, as any capital gain or loss will be disregarded there is no CGT liability for the estate to pay.
The beneficiaries are taken to have acquired the shares on the day the deceased died (subsection 128-15(2) of the ITAA 1997). The first element of the cost base for the shares, which were acquired post 19 September 1985, will be the cost base of the asset for the deceased on the day the deceased died (subsection 128-15(4) of the ITAA 1997).
There will be no CGT liability for the beneficiaries until such time as they later dispose of the shares.
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