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Edited version of private ruling
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Ruling
Subject: Capital gains tax- Deceased Estate
Are you, as trustee for the Estate, liable to pay capital gains tax (CGT) on the disposal of the dwelling?
No.
This ruling applies for the following period:
Year ended 30 June 2010.
The scheme commences on:
1st July 2009
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The deceased made their Will and appointed State Trustees Limited as the executor.
The deceased spouse was absolutely entitled to all the real and personal estate and if they predeceased then their only child will be absolutely entitled on them attaining the age of 21.
The deceased passed away and as their spouse had predeceased them and their child was above 21 years of age, their child became absolutely entitled to all the assets as per the Will.
You, as trustee, only came to know about the deceased passing a number of years later when the deceased child (beneficiary) contacted the State Trustees office and advised that the property in which they were living as their main residence, was the only asset in the deceased's Estate.
You, as trustee, obtained the Grant of Probate proving the Will and that the deceased's child is the sole beneficiary. The administration of the estate was completed soon after this as there were no assets and liabilities other than the property.
The deceased child lived in the property and considered it as their main residence during the period commencing on the date of death of the deceased and concluding when the property was sold in the Estate. The deceased child indicated that they wished to live in the property and wanted this to be transferred into their name.
There were large amount of council rates overdue on this property which the deceased's child was not in a position to pay. The council solicitors threatened to sell the property to recover the overdue rates.
The deceased child sent a letter to you, as trustee, requesting that the property be sold on their behalf in the Estate, as they could not pay the overdue council rates, executor commission and other associated costs.
The dwelling was sold at auction soon after.
Sale settlement occurred and the proceeds were received by you as trustee.
The partial distribution of funds has already been made to the deceased child's as the sole beneficiary and executors are waiting to be informed about the CGT consequences on sale of the property in the Estate.
The sole beneficiary was absolutely entitled to all the assets and lived in the property as their primary residence with the intention to take transfer of this property, but later instructed the executors to sell the property in the Estate due to financial hardship to pay associated costs
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 106-50
Income Tax Assessment Act 1997 section 128-20.
Reasons for decision
Detailed reasoning
You make a capital gain or capital loss if a CGT event happens. The most common event occurs if you dispose of a CGT asset, such as your home. This is called CGT event A1.
When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset.
However, the CGT provisions do not apply to the legal owner of an asset if the legal owner held the asset on trust for another person and that other person was absolutely entitled to that asset as against the trustee.
The core principal underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or be transferred at their direction.
A beneficiary that is absolutely entitled to a CGT asset as against the trustee will be the relevant taxpayer if a CGT event happens to the asset. This is the effect of section 106-50 of the Income Tax Assessment Act 1997 which provides that an act done by a trustee in relation to an asset is taken to have been done by a beneficiary that is absolutely entitled to the asset. Therefore, the beneficiary (and not the trustee) will be treated as the relevant taxpayer.
In your case, the deceased's child is the sole beneficiary to the Estate of the deceased and is absolutely entitled to the assets against you being the Estate's trustee. As such, when you as trustee sold the property, the relevant taxpayer for the purposes of the CGT provisions will be the beneficiary, not you as trustee.