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Edited version of private advice

Authorisation Number: 1052026228515

Date of advice: 7 October 2022

Ruling

Subject: CGT - deceased estates

Question 1

Will the asset pass to the beneficiary of the Deceased's Estate under section 128-20(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997) as per the terms of settlement?

Answer

Yes.

Paragraph 128-20(1)(d) of the 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.

In your case the will of the deceased was challenged in court by one of the beneficiaries of the deceased's estate.

Mediation took place and a Deed of Arrangement was entered into and agreed on by all relevant parties.

As a result of the Deed of Arrangement the beneficiary of the Deceased's Estate will be transferred complete ownership of the asset.

Therefore, the requirements of section 128-20 of the ITAA 1997 are satisfied.

Question 2

In the event that the asset passes to the beneficiary will any capital gain or capital loss the legal personal representative makes be disregarded in full pursuant to section 128-15(3) of the ITAA1997?

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.

Question 3

If capital gains are not fully exempt, please advise the capital gains implications for the legal personal representative of the Deceased's Estate.

Answer

N/A

This ruling applies for the following period:

Year ended 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

Sometime ago the Beneficiary of the Deceased Estate (the Beneficiary) acquired a property (the property).

The Beneficiary used the funds from the sale of the first home to purchase the property.

The Beneficiary was married to their 2nd spouse (the Deceased).

The Beneficiary had children from a previous relationship.

The Deceased had children from a previous relationship (the Deceased's children).

During their marriage, the Beneficiary and the Deceased kept their assets separate.

Sometime after the Beneficiary and the Deceased got married, they met with an advisor (the Advisor) to prepare their Wills.

After meeting with the Advisor the Beneficiary gave the Deceased a 50% ownership interest in the property.

The Beneficiary and the Deceased

•         became tenants in common in equal shares.

•         treated the property as their principal place of residence.

•         did not have an ownership interest in any other property.

A short time after the transfer of the property the Deceased was diagnosed with a Neurological illness and later moved into a nursing home.

Shortly after the Deceased entered a nursing home, the Deceased's children presented the Beneficiary with a Binding Financial Agreement as the Deceased's children had as Enduring Power of Attorney.

The Beneficiary refused to sign the Binding Financial Agreement as the terms were not suitable.

A short time later the Beneficiary became aware that all of the Deceased's bank accounts were emptied.

The Beneficiary filed an application in the Civil and Administrative Tribunal (CAT).

A few months later, CAT revoked the Enduring Power of Attorney and appointed a Public Trustee (PT), as the Deceased's administrator.

Approximately XX years after the Deceased moved into a nursing home the Deceased passed away.

After 18 months Letters of Administration with the will annexed was granted to the PT, having been authorised to act by the Deceased's children named the executors appointed in the Deceased's last will.

The Deceased's will left:

•         the Deceased's 50% ownership in the property for the Beneficiary's lifetime: and

•         The Beneficiary all real and personal estate: and

•         After The Beneficiary's death, the property was to be sold and the proceeds of the sale were to be divided between the children.

The following year, the Beneficiary initiated a claim seeking further provision for their maintenance and support out of the deceased's estate (the Beneficiary Claim).

A pre litigation mediation session was held involving the following parties:

•         the Beneficiary's children:

•         The Deceased's children: and the

•         PT.

All outstanding issues did not settle at mediation however the parties have since agreed to the Terms of Settlement.

The Terms of Settlement was agreed to and signed by all parties.

The Beneficiary continues to treat the property as his principal place of residence after the Deceased's death and has no plans to leave the property in the near future.

The property is not yet transferred to the Beneficiary at the time of the submission of this private ruling application.

The administration of the Deceased's estate is not yet completed.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-15

Income Tax Assessment Act 1997 section 118-20

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