Edited version of private advice

Authorisation Number: 1052100705220

Date of advice: 16 June 2023

Ruling

Subject: CGT - deceased estate

Question 1

Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for the Estate to dispose of its XX% ownership interest in the Property and disregard the capital gain or capital loss made on the disposal?

Answer

Yes. Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'.

Question 2

Are the proceeds from the disposal of the XX% ownership interest in the Property that were held on trust in accordance with the deed of Trust, subject to Capital Gains Tax (CGT) in the hands of either the Trust or the Beneficiaries?

Answer

No. Pursuant to section 104.10(1) of the ITAA 1997, CGT event A1 occurred when the Trust's 50% ownership interest in the Property was disposed. As the ownership interest held by the Trust was created prior to 20 September 1985, the capital gain or loss can be disregarded pursuant to section 104.10(5) of the ITAA 1997.

This ruling applies for the following period:

Income Year ending XX/XX/20XX

The scheme commenced on:

XX/XX/20XX

Relevant facts and circumstances

On XX/XX/19XX, the Deceased divorced the Former Partner.

The Deceased and the Former Partner shared minor children and were registered as joint tenants of the Former Property.

In XX, the Deceased and the Former Partner created the Trust for the benefit of their minor children. The relevant provisions of the Trust deed are:

1.         The Former Partner will transfer all his interests in the Former Property to the Deceased to be held on trust for her life and thereafter for the absolute benefit of the Beneficiaries; and

2.         The Deceased may dispose of the Former Property and purchase a substitute property provided that the interest of the Beneficiaries remains unaffected.

In XXXX, the Deceased purchased the Property. The Deceased disposed of the Former Property and the Beneficiaries interest transferred to the Property.

On XX/XX/19XX, the Deceased married the Life Tenant. The Life Tenant moved into the Property with Deceased.

On XX/XX/20XX, the Deceased passed away leaving the Will. The Property had been the main residence of the Deceased up until their passing.

The Will provided the Life Tenant with a Right to Occupy the Property and stated that if the Property was sold, the Life Tenant may request that half of the proceeds be invested in a replacement property or an accommodation bond. The Beneficiaries agreed to allow the Life Tenant to continue to occupy the Property.

On XX/XX/20XX, the Property was sold. The Life Tenant had occupied the property up until shortly before its disposal and deemed the Property their main residence up until its disposal.

At the direction of the Life Tenant and pursuant to the terms of the Will, the Estate applied the proceeds of its XX% share in the Property to a refundable accommodation deposit at an aged care facility for the Life Tenant, with the balance invested in a Term Deposit. In accordance with the Trust deed, the other XX% share in the Property was distributed to the Beneficiaries in equal shares.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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