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Edited version of private ruling
Authorisation Number: 1011705256101
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Ruling
Subject: Capital gains tax - deceased estate
Question and answer:
Are you absolutely entitled as tenants in common to the shares in Company X from the date probate was granted for the Deceased Estate?
Yes.
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You are the joint executrixes and trustees for the Deceased Estate.
You are the only beneficiaries of the estate.
The will states that the beneficiaries are entitled to the whole of the Trust Estate as tenants in common.
Probate was granted several months ago.
The property of the estate includes shares in Company X.
Currently these shares are held by you in your capacity as executrixes of the estate.
The shares have not yet been transferred to the beneficiaries.
In discharging your obligations as trustees and executrixes of the estate, you propose that the shares be distributed, in equal proportion, to you as beneficiaries in your sole capacity, rather than as tenants in common.
You argue that this course of action provides the same practical outcome as if the shares were held as tenants in common from a voting, income and capital rights perspective.
You have not entered into a formal arrangement or agreement to vary the terms of the will prior to any distribution of trust assets.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 102-22.
Income Tax Assessment Act 1997 Section 104-75.
Income Tax Assessment Act 1997 Section 106-50.
Income Tax Assessment Act 1997 Section 128-20.
Reasons for decision
Section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) states:
If you are absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), this Part and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it.
The Commissioner's view in regards to the meaning of 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the ITAA 1997 is set out in Draft Taxation Ruling TR 2004/D25.
In relation to deceased estates, paragraph 72 of TR 2004/D25 states:
A beneficiary of a deceased estate does not have an interest in any asset of the estate (and therefore cannot be considered absolutely entitled to any of the estate's assets) until the administration of the estate is complete. That is, until the assets of the estate have been called in and the deceased's debts and liabilities have been paid.
In relation to the time when an asset passes to a beneficiary, section 128-20 of the ITAA 1997 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.)
(2) A CGT asset does not pass to a beneficiary in your estate if the beneficiary becomes the owner of the asset because your legal personal representative transfers it under a power of sale.
Taxation Determination TD 2004/3 considers whether an asset passes to a beneficiary of a deceased estate under section 128-20 of the ITAA 1997 if the beneficiary becomes absolutely entitled to the asset as against the trustee of the estate.
Paragraphs 1 of TD 2004/3 states:
An asset will 'pass' to the beneficiary of a deceased estate when the beneficiary becomes absolutely entitled to the asset as against the estate's trustee (whether or not the asset is later transmitted or transferred to the beneficiary).
In your case, you are the beneficiaries of a deceased estate. Administration of the estate was complete upon the granting of probate. Therefore, you became absolutely entitled to the estate's assets, and they passed to you on the date probate was granted.