Edited version of private advice

Authorisation Number: 1052362303566

Date of advice: 14 February 2025

Ruling

Subject: Capital gains tax

Question 1

Will CGT Event K3 occur in relation to the Country Z Property whether it forms part of the Australian estate or not?

Answer 1

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Public Trustee is the trustee of the deceased's estate.

The deceased was born in Country Z.

The deceased passed away several years ago and left no Will.

The deceased was a resident of Australia for taxation purposes just before they passed away.

There are several beneficiaries of the deceased's estate, some are known to be foreign residents, and the others could not be located.

The deceased owned a share in a unit in Country Z (the Country Z Property).

It is unknown how the deceased acquired the share in the unit.

The Country Z authorities will not accept the Public Trustee's authority and will require a Grant of Probate in a Country Z Court.

The Public Trustee have been further advised via a Country Z Solicitor that the Country Z Court will most likely not recognise the Public Trustee's authority and the Country Z Property will be dealt with under Country Z Laws.

The beneficiaries have requested to deal with the Country Z Property themselves.

Minimal funds are held in the deceased estate.

Due to the above facts, the Public Trustee as the trustee of the deceased estate does not wish for the Country Z Property to be recognised as a part of the Australian estate.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-215

Income Tax Assessment Act 1997 section 128-20

Reasons for decision

CGT event K3 in section 104-215 of the Income Tax Assessment Act 1997 (ITAA 1997) happens if a CGT asset owned by a deceased person just before they die, passes to a beneficiary in their estate that, when the asset passes, is a tax-exempt entity or is the trustee of a complying superannuation entity or is a foreign resident.

If the asset passes to a beneficiary who is a foreign resident, CGT event K3 happens only if the deceased was an Australian resident just before dying and the asset (in the hands of the beneficiary) is not taxable Australian property.

Under subsection 104-215(3) of the ITAA 1997, CGT event K3 is taken to happen just before the deceased's death. The trustee of the estate must include in the date of death return any net capital gain for the income year when the deceased died.

Section 128-20 of the ITAA 1997 states that the circumstances in which an asset passes to a beneficiary in a deceased estate includes where the beneficiary becomes the owner of the asset by operation of an intestacy law, or such law as varied by a court order.

Application to present circumstances

In the present case, the deceased was an Australian resident just before their death and the Country Z Property is not taxable Australian property.

It is possible for a deceased who owned assets in more than one country to have an estate administered in each country to deal with the assets in the respective country.

The deceased died without a will so the foreign beneficiaries will gain ownership of the Country Z Property under either Australian or Country Z intestacy law. That is, the Country Z Property will pass to the beneficiaries through either the deceased's Australian estate or their Country Z estate.

The wording in section 104-215 of the ITAA 1997 merely requires that the asset 'passes to a beneficiary' in the deceased's estate. It does not stipulate that the estate must be an Australian estate. Therefore, CGT event K3 will happen whether the Country Z Property is transferred to the foreign beneficiaries through the deceased's Australian estate or Country Z estate.

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