Edited version of private advice

Authorisation Number: 1052232743007

Date of advice: 27 March 2024

Ruling

Subject: CGT - deductible gift recipient

Question 1

Are you entitled to a deduction for donations you made to deductible gift recipients?

Answer

No.

Question 2

Did a capital gains tax event happen to you due to the sale of the property?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

XX YYYY 20ZZ

Relevant facts and circumstances

The deceased passed away and probate was granted shortly after.

In the deceased's Will Executors were appointed for the deceased's estate.

In the terms of the Will, the deceased left specific instructions including for the executors to hold in trust the property for their child and permit the child to reside in property on the condition that the child maintain rates and the property. The Will provided that upon the death of the child for the property to be sold and the proceeds paid to a charity.

The child did not receive any rental income from the property, nor did they pay any expenses for the property.

The child had a chronic medical issue and lived with their parent until the parent passed away. The child was then placed in a care home.

On XXXX the child passed away.

The property was sold.

The property was rented out shortly from the date of death of the deceased and stopped being made for rent several months before the property was sold. All rental income was deposited into the bank account of the deceased estate.

You have advised that the charity intends on accepting the proceeds from the sale of the property.

The charity is registered with the ACNC as a deductible gift recipient.

From the deceased estate's bank account council rates, lawn mowing, and other running costs of the property were paid from this account. Regular donations were made to other deductible gift recipient charities with surplus funds with a small cash surplus as a float.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 106-50

Income Tax Assessment Act 1997 section128-15

Income Tax Assessment Act 1997 section 128-20

Assumption

For the purpose of this ruling it is assumed that you will transfer the capital proceeds from the sale of the property to the charity before the financial year ends.

Reasons for decision

Question 1

Summary

You are not entitled to a deduction for the donations you made to deductible gift recipients.

Detailed reasoning

Subsection 30-15(2) of the Income Tax Assessment Act 1997 (ITAA 1997) specifically provides that a testamentary gift or contribution is not deductible under section 30-15 of the ITAA 1997.

Income tax legislation does not provide a definition of or any specific guidance as to what is meant by the word 'testamentary'. The word therefore bears its ordinary meaning.

The Australian Oxford English Dictionary defines 'testamentary' to mean 'of or by or in a will.' The meaning of 'testamentary' was considered by Kekewich J in Re Clemow, Yeo v Clemow [1900] 2 Ch 182. He referred to the Century Dictionary definition of 'testamentary 'as 'relating or appertaining to a will or wills; also relating to administration of the estates of deceased persons.'

The term 'Will' is defined in the Butterworths Australian Legal Dictionary as:

a legal document which a person, the testator, makes provision for an executor to be appointed to administer their estate after their death to discharge liabilities and to distribute property as directed to beneficiaries as specified.

A gift made by an executor in accordance with the terms of a will is a testamentary gift or contribution. Consequently, a gift or contribution that is made under will is not deductible under section 30-15 of the ITAA 1997.

Accordingly, the deceased estate is not entitled to a deduction under Division 30 of the ITAA 1997 for any monetary gifts or contributions made as executor of the deceased estate.

Question 2

Summary

A capital gains tax (CGT) event in relation to the sale of the property did not occur to you.

Detailed reasoning

A CGT asset owned by a deceased person at the time of their death passes to a beneficiary of the deceased's estate if the beneficiary becomes the owner of the asset under the Will or in one of the other ways set out in subsection 128-20(1) of the ITAA 1997. An asset 'passing' to a beneficiary of a deceased estate includes when that beneficiary becomes absolutely entitled to the asset, whether or not the asset is later transmitted or transferred to the beneficiary.

The beneficiary will be the relevant taxpayer if a CGT event happens to the asset after it has passed to the beneficiary. Paragraph 4 of Taxation Determination 2004/3 provides that while an asset can pass to a beneficiary once legal ownership of the asset has transferred to the beneficiary, we consider that an asset can pass to a beneficiary prior to transfer if the beneficiary becomes absolutely entitled to the asset as against the trustee. It is considered that there is nothing in section 128-20 of the ITAA 1997 that makes 'passing' dependent upon the acquisition of legal ownership.

The effect of this is that even if legal ownership of an asset has not been transferred to the beneficiary who is entitled to the asset, a sale of the asset will give rise to a capital gain in the hands of the beneficiary, rather than the estate.

Here, the charity is a tax-exempt entity. We consider that the charity as the remainderman was made absolutely entitled to the property on the date of date of the life tenant (the deceased son) as per the relevant clause of the Will and therefore the asset passed to the charity on this date as well. It follows that at the time the property was sold you no longer owned the property. Therefore, you are not assessed on the CGT event that arises from the sale of the property.

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