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This edited version has been archived due to the length of time since original publication.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

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: 1013115025934

Date of advice: 28 October 2016

Ruling

Subject: CGT - Deceased Estate - Property and Entitlement - Remainder interest

Question 1:

Is your interest (as beneficiary to your late spouse's estate) in the estate of their parent a CGT asset?

Answer 1:

Yes.

Question 2:

Did a CGT event happen when you signed the Deed of Assignment?

Answer 2:

Yes.

Question 3:

Is the first element of the cost base of your CGT asset a certain percentage of the market value of the land as at the date of death of the parent?

Answer 3: Yes.

This ruling applies for the following period:

Year ended 30 June 2014.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

Your late spouse's parent acquired farming land before 20 September 1985, a pre-CGT asset.

Your late spouse's parent passed away after 20 September 1985 and probate of their will was granted to their spouse as sole executor.

Your late spouse's parent left a life interest in the land to their spouse and a remainder interest in the property to the children.

Your late spouse therefore inherited a remainder interest in the land (a percentage share as tenants in common) on the date of death of the parent.

Your late spouse passed away before their other parent (the life interest holder). Probate of your late spouse's will was granted to you as sole executor.

You were the sole beneficiary of your late spouse's estate; therefore you were entitled to receive your late spouse's remainder interest in the land, (the entitlement to a percentage share in the land as tenants in common) when the life interest holder passed away. You therefore inherited this interest in the estate of your late spouse's parent (as beneficiary of your late spouse's estate). You acquired the interest on your spouse's date of death.

The life interest holder passed away after your late spouse passed away and probate of this will was granted to your sibling in law.

Your sibling in law by being executor of the life interest holder's will also became trustee of your late spouse's parent's estate.

The registered proprietor of the land is your sibling in law as the Executor of the life interest holder leaving the Estate of your spouse's parent in the within land unadministered.

Later you entered into a Deed of Assignment between yourself, the other remainder man and the trustee of the estate of your late spouse's parent.

The parties have ascertained and agreed that the value of your certain percentage by reference to the property valuation undertaken by a Valuer is a certain amount.

You have agreed to transfer and assign to the other remainder man as tenants in common in equal shares your interest in the land for a certain amount.

The following documents are to be read with and form a part of the scheme for the purposes of this private binding ruling:

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 102-20

Income Tax Assessment Act 1997, Section 104-10

Income Tax Assessment Act 1997, Section 104-20

Income Tax Assessment Act 1997, Section 104-25

Income Tax Assessment Act 1997, Section 104-75

Income Tax Assessment Act 1997, Section 108-5

Income Tax Assessment Act 1997, Section 128-10

Income Tax Assessment Act 1997, Section 128-15

Income Tax Assessment Act 1997, Section 128-20

Reasons for decision

Question 1

Your interest (as beneficiary to your late spouse's estate) in the estate of your late spouse's parent is a CGT asset.

Section 108-5 of the Income Tax Assessment Act, 1997 (ITAA 1997) defines what a CGT asset is. A legal or equitable right that is not property is included in the definition and to avoid any doubt, a part of or an interest in a legal or equitable right is also included in the definition.

When the CGT asset devolves to either the legal personal representative (the trustee) or passes to a beneficiary of the deceased estate, the trustee or beneficiary is taken to have acquired the asset on the day the person died. (Subsection 128-15(2) of the ITAA 1997.)

Section 128-20 of the ITAA 1997 sets out the circumstances when an asset is taken to have passed to a beneficiary. An asset passes to a beneficiary if they become the owner of a CGT asset under a will. (Subsection 128-20(1) of the ITAA 1997).

Your CGT asset was not the land; it was the right to the certain percentage share of the land. The legal owner of the land was your sibling in law as trustee of both the life interest holder's and your late spouse's parent's estate.

Your late spouse acquired the remainder interest (CGT asset) on the date their parent passed away.

You acquired your late spouse's remainder interest (CGT asset) when they passed away.

Question 2

Summary

A CGT event happened on when you signed the Deed of Assignment.

Detailed reasoning

You released your remainder interest in the land when you signed the Deed of Assignment. Paragraph 66 of TR 2006/14 Income tax: capital gains tax: consequences of creating life and remainder interests in property and of later events affecting those interest. (TR 2006/14) states that CGT event A1 happens when you do this. This is because there is a change of ownership in the interest rather than an ending of the interest.

You make a capital gain or a capital loss if and only if a CGT event happens. (Section 102-20 of the ITAA 1997).

Your capital proceeds are a certain amount. There is no need for any market valuation substitution rule to apply because the land was officially valued by a property valuer.

Question 3

Summary

The first element of the cost base of your CGT asset is your certain percentage share of the market value of the land as at the date that your spouse's parent passed away.

Detailed reasoning

Your late spouse acquired the remainder interest on the date their parent passed away. As they had acquired a remainder interest in a pre-CGT asset, the first element of the cost base for them was the certain percentage share of the market value of the land at the date of death of the parent. (Item 4 of subsection 128-15(4) of the ITAA 1997).

When you acquired the remainder interest on the date your spouse passed away, (a post CGT asset for you) the first element of your cost base is your late spouse's cost base which is their certain percentage share of the market value of the land at the date their parent passed away. (Item 1 of subsection 128-15(4) of the ITAA 1997).

The death of the life interest owner has no CGT consequences for the remainder owner, (you). The remainder owner does not acquire any asset from the life interest owner; their existing interest is merely enlarged. Consequently, no additional amount can be included in the first element of the cost base of the remainder owner's asset.

There is no provision to disregard capital gains or capital losses that the life interest or remainder owners may make in respect of the ending of their trust interest.

NOTE: Your capital gain is a discount capital gain and therefore is reduced by 50%.

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