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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1013035198236

Date of advice: 16 June 2016

Ruling

Subject: Capital gains

Question 1

Does a capital gains tax (CGT) event occur on the in-specie distribution of assets to a tax exempt entity that is an endorsed deductible gift recipient (DGR)?

Answer

Yes.

Question 2

Will any capital gains made in relation to the in-specie distribution of assets 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 ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The deceased acquired shares prior to their death.

Pursuant to the terms of their will, the residue of the deceased's estate will be distributed to a DGR.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-15

Income Tax Assessment Act 1997 Section 104-215

Income Tax Assessment Act 1997 Section 118-60

Income Tax Assessment Act 1997 Section 128-10

Income Tax Assessment Act 1997 Section 128-15

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

Generally, 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.

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 will happen as the shares and securities are passed to 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 whom 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:

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:

Accordingly, any capital gain made from CGT event K3 happening is disregarded.

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