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Edited version of private ruling
Authorisation Number: 1011643168851
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Ruling
Subject: Capital gains tax- Deceased Estate
Question:
Is any capital gain or loss that you as trustees make, when the assets pass to the beneficiaries in the Deceased Estate disregarded?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 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 inherited some hectares of cleared land sometime before 20 September 1985.
The land was subdivided into lots of varying acres after 20 September 1985, while the deceased was alive.
The Estate was created by will on the death of the deceased.
The deceased provided their spouse with a life interest to the net income of the trust.
Upon their spouse's death, the estate was to be distributed in equal parts to you both as remainder owners of the estate.
Title to the land passed to you in your capacity as legal personal representatives of the Estate.
You as trustees with the consent of the deceased spouse, wish to bring the trust to an end and transfer the Estate land to the remainder owners.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-85
Income Tax Assessment Act 1997 Section 128-10
Income Tax Assessment Act 1997 Section 128-15
Income Tax Assessment Act 1997 Section 128-20
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Detailed reasoning
You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset.
Subsection 104-85(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that CGT event E7 happens if the trustee of a trust, other than a unit trust or a trust to which Division 128 of the ITAA 1997 applies, disposes of assets to a beneficiary in satisfaction to the beneficiary's interest in the trust capital.
The meaning of the words 'a trust to which Division 128 applies' is discussed at paragraphs 197 to 208 of Taxation Ruling TR 2006/14 when it states that:
202. Division 128 applies to the passing of an asset from a deceased individual's legal personal representative to a beneficiary in their estate (provided that the asset was owned by the deceased individual at the time of their death).
203. Accordingly, 'a trust to which Division 128 applies' requires more than the identification of the trust as a deceased estate. We consider that the words 'a trust to which Division 128 applies' should be interpreted as a deceased estate to the extent that it is a trust over an asset originally owned by a deceased individual and which may pass to the beneficiary in accordance with section 128-20 (that is, under the will, by intestacy and so on.)
Section 128-20 of the ITAA 1997 discussed when an asset passes to a beneficiary. It states:
(1) A CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset:
(a) under your will, or that will as varied by a court order; or
(b) by operation of an intestacy law, or such a law as varied by a court order; or
(c) because it is appropriated to the beneficiary by your legal personal representative in satisfaction of a pecuniary legacy or some other interest or share in your estate; or
(d) under a deed of arrangement if:
(i) the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and
(ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of your estate.
(It does not matter whether the asset is transmitted directly to the beneficiary or is transferred to the beneficiary by your legal personal representative).
In your case, you as trustees with the consent of the deceased's spouse who holds a life interest, wish to bring the trust to an end and transfer the Estate land to the remainder owners.
Therefore, the exception for trusts to which Division 128 of the ITAA 1997 applies has no relevance to your situation because the land is not passing to the beneficiaries in terms of section 128-20 of the ITAA 1997. The land is not passing under the will nor is it passing under a deed of family arrangement entered into to settle a claim to participate in the estate.
As the exception does not apply, CGT event E7 will happen when you as trustees of the Estate, transfer the land to the remainder owners. The time of the event is when the disposal occurs.