| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012852250325
Date of advice: 31 July 2015
Ruling
Subject: CGT - Deceased Estate - Property transferred to a foreign resident
Question 1:
Does CGT event K3 happen due to the property being transferred to the foreign resident beneficiaries?
Answer 1:
No.
This ruling applies for the following periods:
Year ended 30 June 2015.
Year ended 30 June 2016.
The scheme commences on:
1 July 2007.
Relevant facts and circumstances
The deceased came to Australia to study.
The deceased purchased a property in their sole name situated in Australia (the property) for a certain price.
The purchase of the property was financed by the deceased's parents and no loan was taken out.
The deceased lived in the property for a short time as their main residence.
Later the deceased finished their degree and returned to live overseas with no intention of returning to Australia.
The property was rented out and continues to be rented out.
The deceased lodged income tax returns in Australia up until a few years prior to passing away, declaring the rental income.
In the income tax returns lodged the deceased advised that they were not a resident of Australia.
The deceased remained a non-resident of Australia for tax purposes and at the time of their passing was a non-resident of Australia. The deceased passed away some years ago overseas.
The deceased's sibling has authorised the State Trustees Limited late last year to administer the estate of the deceased.
The beneficiaries of the deceased's estate are the deceased's siblings, (the beneficiaries) who both reside overseas.
The beneficiaries are both foreign residents and will take transfer of the property in their names as tenants in common.
The following documents are to be read with and form part of the scheme for the purposes of the private binding ruling:
• Copy of the title search for the property locate in Australia; and
• Copy of probate and confirmation that the State Trustees Limited were authorised to administer the estate of the deceased dated last year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-215.
Income Tax Assessment Act 1997 Subsection 104-215(1).
Income Tax Assessment Act 1997 Subsection 104-215(2).
Income Tax Assessment Act 1997 Section 128-10.
Income Tax Assessment Act 1997 Section 855-15.
Income Tax Assessment Act 1997 Section 855-20.
Income Tax Assessment Act 1997 Section 995-1.
Reasons for decision
Question 1
Summary
CGT event K3 does not happen due to the property being transferred to the foreign resident beneficiaries.
Detailed reasoning
Section 128-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that when a person dies, a capital gain or capital loss from a capital gains tax (CGT) event happening to a CGT asset the person owned just before dying is disregarded. However, section 104-215 of the ITAA 1997 (CGT event K3) sets out an exception to this rule if the CGT asset passes to a beneficiary in your estate who is:
1. An exempt entity; or
2. The trustee of a complying superannuation entity; or
3. A foreign resident.
Subsection 104-215(2) of the ITAA 1997 states that if the asset passes to a beneficiary who is a foreign resident, CGT event K3 happens only if:
1. You were an Australian resident just before dying, and
2. The asset (in the hands of the beneficiary) is not taxable Australian property.
Taxable Australian property includes taxable Australian real property which is defined in section 855-20 of the ITAA 1997 and includes real property situated in Australia.
In this case, the deceased was not an Australian resident just before dying and the property is taxable Australian property; therefore CGT event K3 will not happen. Accordingly, no capital gain or capital loss will be happen in relation to the transfer of the property to the deceased's non-resident beneficiaries.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
