| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011705192191
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Capital gains tax - property settlement
Question 1
Will a CGT event occur when the Property A is transferred to a beneficiary of the Estate?
Answer
No.
Question 2
Will a CGT event occur when the Property B is transferred to a beneficiary of the Estate?
Answer
Yes.
This ruling applies for the following period
Period ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
The deceased acquired the Property A after 20 September 1985.
The Property A was the deceased's main residence until the time of their death in 1993.
The Property A was used for income producing purposes after the deceased's death.
Under the deceased's will, the Trustee was granted absolute discretion to invest any part of the estate in any form of investment.
The Trustee purchased the Property B in 1995 with estate funds, this dwelling was used for income producing purposes.
The three beneficiaries were to receive the property of the estate when they attained the age of 21. One beneficiary did not reach the age of 18. One beneficiary has attained the age of 21 and the third beneficiary will attain the age of 21 shortly.
The Trustee is planning to transfer the Property A to one beneficiary and the Property B to the other beneficiary.
This ruling applies for the following period
Period ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
The deceased acquired the Property A after 20 September 1985.
The Property A was the deceased's main residence until the time of their death in 1993.
The Property A was used for income producing purposes after the deceased's death.
Under the deceased's will, the Trustee was granted absolute discretion to invest any part of the estate in any form of investment.
The Trustee purchased the Property B in 1995 with estate funds, this dwelling was used for income producing purposes.
The three beneficiaries were to receive the property of the estate when they attained the age of 21. One beneficiary did not reach the age of 18. One beneficiary has attained the age of 21 and the third beneficiary will attain the age of 21 shortly.
The Trustee is planning to transfer the Property A to one beneficiary and the Property B to the other beneficiary.
Relevant legislative provisions
Income Tax Assessment Act 1997
Section 104-85
Section 118-210
Section 128-15
Reasons for decision
Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens when a person dies and a CGT asset they owned just before dying devolves to their trustee or passes to a beneficiary of their estate.
Division 128 of the ITAA 1997 applies to Property A. However, Property B was not owned by the deceased prior to his death so this Division does not apply.
Property A
Section 128-15 of the ITAA 1997 provides that property owned by the deceased just before death which passes to the beneficiaries under a will is acquired by the beneficiaries at the date of death and any capital gain or capital loss made by the legal personal representative is disregarded.
Therefore, there will be no capital gain or loss to the trustee.
Property B
This property was not owned by the deceased at the time of death.
Therefore, Division 128 of the ITAA 1997 does not apply to this property.
More than one beneficiary with interests in a trust asset
If there is more than one beneficiary with interests in the trust asset, then it will usually not be possible for any one beneficiary to call for the asset to be transferred to them or to be transferred at their direction. This is because each beneficiary is not individually entitled to the entire asset.
Where more than one beneficiary has an interest in the trust assets, absolute entitlement can only be established if the asset is fungible. Assets are fungible if each asset matches the same description such that one asset can be replaced with another.
If the assets are not fungible, but more than one beneficiary has an interest in them, then that is the clearest possible indication that, under the terms of the trust, individual beneficiaries are not entitled to a particular asset to the exclusion of others.
In your case, there were initially three beneficiaries who had an interest in Property A and the other assets held by the trustee under the will.
After Property B was purchased, the beneficiaries each had an interest in this property.
After the death of one of the beneficiaries, the remaining two beneficiaries had an interest in the properties and other assets held by the trustee.
The two properties are not identical and are not fungible, therefore the beneficiaries cannot be absolutely entitled to either property, or to their respective interest in the properties.
Transfer of property to the beneficiaries
You will dispose of Property B when you transfer legal title of it to the beneficiary. This transfer of legal title constitutes a change in ownership of the property.
Where more than one CGT event (except CGT events D1 and H2) can happen, you use the one that is most specific to your situation.
Both CGT event A1, disposal of a CGT asset, and CGT event E7 happen if the trustee of a trust disposes of a CGT asset of the trust to the beneficiaries in the satisfaction of the beneficiaries' interest, or part of it, in the trust capital. The time of the event is when the disposal occurs.
In your case, CGT event E7 is more specific to your situation. CGT event E7 will occur when you transfer the Cronulla to the beneficiary, so it is used when determining how the capital gains provisions apply to your situation.
How this applies to your situation
In your role as trustee, you will transfer the legal ownership of the relevant property to one of the surviving beneficiaries.
As discussed above, in regards to Property B, you cannot claim an exemption under Division 128 of the ITAA 1997. Furthermore, the beneficiary will not be absolutely entitled to the property on the date you transfer it to him.
Consequently, CGT event E7 will occur at the time you transfer the property to the beneficiary.
Therefore, as trustee, you will make a capital gain or loss when you transfer ownership of the Cronulla to the beneficiary.
For the purposes of calculating the capital gain or capital loss, the capital proceeds will be the market value of the property at the time it is transferred to the beneficiary.