Edited version of private ruling

Authorisation Number: 1011710823090

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Subject: Capital gains tax

Ruling

Can the estate disregard any capital gain or loss?

Yes.

This ruling applies for the following period

1 July 2001 to 30 June 2011

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.

A and B purchased property, as joint tenants, containing lot 1 and lot 2.

Lot 1 (contains a garage) and Lot 2 (house already built).

The property was the A and B main residence throughout their lives.

In 1993 A passed away. The properties estimated value, at the time of probate, was $230,000.

In 1993 B became the sole registered proprietor of both lots by way of transmission application and beneficiary under the Will.

In 1999 C commenced living at the property with B and the dwelling became his main residence.

In 2001 B passed away leaving her whole estate to C. C was also named as the executor of B's estate.

In 2001 the estimated market value of Lot 1 was $270,000 and Lot 2 $300,825. The market appraisal of the 2 lots combined, by a real estate agency, was between $600,000 and $620,000.

In 2001 probate was granted in favour of C.

In 2001 proceedings challenging the validity of the Will were commenced by D.

In 2001 D obtained ex parte orders restraining C from carrying out any further administration in his capacity as B's executor.

In late 2001 C moved out of the property and resides overseas. He still elects the property to be his main residence.

In 2004 C and D enter into a Deed of Settlement.

In 2004 the court proceedings were dismissed.

In 2004 the property was transmitted into C's name.

In 2004 Lot 1 and Lot 2 were issued separate titles.

From the time C moved overseas until the settlement of the sale of the lots the property was vacant. It was not used for any income generating purposes and expenses relating to the dwelling have not been claimed by either C or D.

Prior to the sale of the property significant maintenance work was required because of the period the property was vacant.

In 2005 Lot 2 sold for $390,000.

In 2006 Lot 1 sold for $350,000.

Under the Deed of Settlement, after the lodgment of income tax returns and payment of any taxes, the proceeds of sale from the two lots are to be split between C and D each receiving 50%.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 128-15(3)

Income Tax Assessment Act 1997 Section 128-20

Reason for Decision

Under subsection 128-15(3) of the Income Tax Assessment Act 1997 (ITAA 1997) any capital gain or capital loss the legal personal representative makes if the asset passes to a beneficiary in your estate is disregarded.

Section 128-20 of the ITAA 1997 states;

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.)

Therefore; as the estate has distributed its assets to the beneficiary in accordance with B's Will, the assets have passed to a beneficiary and any capital gain or loss the legal personal representative made is disregarded.