Edited version of private ruling

Authorisation Number: 1011628841640

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Ruling

Subject: Property transferred to a discretionary trust

Will you make a capital gain or capital loss on the transfer of the property?

Yes.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1July 2010

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 purchased a property prior to 20 September 1985 when their family first migrated to Australia from an overseas country.

The property was the deceased's main residence.

The deceased passed away intestate.

The property passed to you under the laws of intestacy.

You decided to roll the property into a discretionary family trust rather than have the property transferred to you and then transferred into the discretionary family trust.

The property was transferred into the trust over two years after the deceased passed away.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-60

Income Tax Assessment Act 1997 Section 106-50

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Section 118-195

Income Tax Assessment Act 1997 Section 128-15.

Reasons for decision

You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset that you own.

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 due to the law of intestacy.

Generally, any capital gain or loss made when the asset passes to a beneficiary of the deceased estate is disregarded. However, the beneficiary will be the relevant taxpayer if a CGT event happens to the asset after it has passed to the beneficiary.

While it is clear that an asset has passed 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 Income Tax Assessment Act 1997 (ITAA 1997) that makes 'passing' dependent upon the acquisition of legal ownership.

CGT event E2 happened when the property was transferred to the discretionary trust. As the property had passed to you under the intestacy laws any capital gain or loss made when the dwelling was transferred from the estate to the family trust is made by you.

In certain circumstances, where a property has been inherited and disposed of within two years of the deceased death, any capital gain or capital loss is disregarded. However, as you disposed of the property outside this two year period, this will not apply to your situation.

You make a capital gain if the capital proceeds are more than the assets cost base. You make a capital loss if the capital proceeds are less than the assets reduced cost base.

As the deceased acquired the property prior to 20 September 1985, the cost base of the property is its market value on the date of the deceased's death.

The capital proceeds is the market value of the property on the date that it was transferred to the trust.