Edited version of private advice

Authorisation Number: 1051840027131

Date of advice: 20 May 2021

Ruling

Subject: Legal personal representative transferring assets to the beneficiaries of the deceased estate

This ruling applies to the beneficiaries of the trust and to the trustee and to any future trustees, for as long as the ruling remains current.

Question 1

Will a CGT event happen on the transfer of the properties or the shares from the legal personal representative to the beneficiaries of the deceased estate under the agreed deed of family arrangement?

Answer

Yes. Subsection 128-20(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset passes to a beneficiary of the deceased estate if the beneficiary becomes the owner of an asset under a deed of arrangement if:

(i)            the beneficiary entered into the deed to settle a claim to participate in the distribution of the estate; and

(ii)           any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of the estate.

The requirements of section 128-20 of the ITAA 1997 are satisfied in your case, however the application of section 128-10 means that a capital gain or loss from a CGT event that results for a CGT asset the deceased owned just before their death is disregarded. The assets are taken to have been acquired by the beneficiaries on date of the deceased's death.

Question 2

If the answer to Question 1 is Yes, will any capital gains made on any of those transfers be disregarded under section 128-15 of the ITAA 1997?

Answer

Yes. Subsection 128-15(3) of the ITAA 1997 applies to disregard any capital gain or capital loss the legal personal representative makes if an asset passes to a beneficiary in the deceased estate.

The modifications to the first element of the asset's cost base and reduced cost base in the hands of the legal personal representative or beneficiary are set out separately in the items in the table in subsection 128-15(4) of the ITAA 1997.

Further information about receiving assets if you are a beneficiary of a deceased estate can be found by searching Quick Code QC 40485 on ato.gov.au

This ruling applies for the following periods:

For the income year ended DDMMYYYY

For the income year ended DDMMYYYY

For the income year ending DDMMYYYY

The scheme commences on:

DDMMYYYY

Relevant facts and circumstances

The deceased died in YYYY and left a will dated YYYY.

Probate was granted on DDMMYYYY.

The deceased is survived their only child (Person A) and three grandchildren.

All beneficiaries are over 18 years of age and are not under any legal disability.

The deceased's estate compromises, among other things, real property and a portfolio of shares.

A friend (Person B) of the deceased was gifted all the deceased's personal effects, household contents, furnishings and chattels, including but not limited to jewellery, clothing, shoes and beds.

Under the terms of the deceased's will, the properties and shares were to be gifted to the beneficiaries as described in order of substitution in the annexure document accompanying this ruling.

A transfer of the legal title to the assets was then to be obtained.

A family trust was settled by deed dated DDMMYYYY and a deed of variation on DDMMYYYY which named the relevant trustee.

The immediate relatives named in the will are all beneficiaries of this family trust.

For many years Person A resided in a property located at X, which was an asset of the family trust.

Since the date of death, Person A and the trustee have incurred costs to repair and maintain this particular asset.

On DDMMYYYY, Person A contested the will to claim further provision for their proper maintenance and support of the asset out of the deceased estate.

The trustee previously claimed Person A owed an amount to the family trust, however after mediation occurred on DDMMYYYY the trustee later agreed that no debt is repayable by any of the parties to the deceased estate and the account was amended to zero acknowledging the amount was to be allocated to the deceased's loan account with the family trust.

As at DDMMYYYY, the family trust is indebted to the deceased estate for the loan amount of $X to the extent that the amount can be recovered, and is calculated after the property is transferred to Person A including any tax payment, and subject to observing the terms be dealt with in the estate as residue.

If the trustee makes the property transfer and any tax payment, there would not be sufficient assets left to repay the debt to the estate in full.

On DDMMYYYY, the agreed terms of settlement and the associated terms of the schedule between all of the parties to the deceased estate compromised Person A's claim by agreeing that legal title to the assets would be transferred accordingly.

Under the agreement, the transfer of the assets is an acceleration of the vesting of the testamentary trust that those properties and shares would currently be held.

The deed of family arrangement entered into in respect of the relevant assets has occurred prior to the executor completing the administration of the deceased estate and is to be applied by DDMMYYYY or within 30 days of signing of the terms.

All proposed transfers are not by way of any exercise of any power of sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 128-10

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20

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).