Edited version of private advice

Authorisation Number: 1052148248804

Date of advice: 28 July 2023

Ruling

Subject: Deceased estate - deed of family arrangement

Question 1

Will the X% portion of Property A be considered to pass to Beneficiary A in accordance with section 128-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, the X% share of the property will pass to Beneficiary A under the deed of arrangement between the beneficiaries in accordance with section 128-20 of the ITAA 1997 as Beneficiary A is waving their rights to the other assets in the estate, and acquiring the corresponding share in value of the property. A CGT asset for the purposes of section 128-20 includes part of, or an interest in, any kind of property as per section 108-5 of the ITAA 1997, therefore, the portion of the property.

Question 2

If the answer to Question 1 is yes, will the capital gain from the transfer of the other portion of Property A to Beneficiary A be calculated based on the extent to which Y% of the agreed market value exceeds Y% of the market value of the property as at the date of the deceased's death?

Answer

Yes, under section 128-15 of the ITAA 1997 the cost base for the property will be the market value at the date of the deceased's death as they acquired it before 20 September 1985. Therefore, the capital gain from the disposal event should be calculated based on the extent to which the agreed market value of the portion exceeds the market value at the date of the deceased's death.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away in June 20XX

The deceased provided her surviving husband a life interest in the residuary assets of her deceased estate. At the time of her death, the estate included, amongst other assets, a property referred to as "Property A"

The Will of the deceased stated that on their spouses' passing, and on the cessation of the life interest, their estate was then to be passed to their children, Beneficiary A, Beneficiary B, and Beneficiary C equally

Property A was originally acquired prior to 20 September 1985

The market value of Property A at the date of the deceased's death was $XXXXX

The deceased's spouse passed away approximately X years after the deceased

The residuary estate now comprises of Property A valued at approximately $X million more than at the date of death of the deceased, and surplus cash from the sale of other investments is $XXXXXX

At all relevant times, Property A has been used in a business conducted by a trust controlled by Beneficiary A

To continue conducting the business, Beneficiary A is now proposing to acquire Property A from the estate

As a beneficiary of the estate, Beneficiary A is entitled to a third share of Property A and a third share of the surplus cash of the estate

Beneficiary A, Beneficiary B and Beneficiary C have proposed to enter into a Deed of Family Arrangement which stipulates the following:

•         Approximately X% of Property A shall be transferred from the estate to Beneficiary A in full satisfaction of Beneficiary A's entitlements within the estate

•         Beneficiary A and/or nominee shall acquire the remaining approximately Y% of Property A from the estate for agreed consideration that represents Y% of the agreed market value at the time of the Deed of Family Arrangement

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-5

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).