Edited version of private ruling

Authorisation Number: 1011770288042

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Ruling

Subject: Capital gains tax - deceased estate

Question 1

Is a net capital gain made from the refund of the accommodation bond and the sale of the investment units?

Answer

Yes.

Question 2

Is the net capital gain disregarded?

Answer

No.

Question 3

Is the capital gain made a discount capital gain?

Answer

Yes.

Question 4

Are the costs of the administration of the estate taken into account when calculating the cost base of the capital assets?

Answer

Yes.

This ruling applies for the following period:

Year ending 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.

You were appointed executors of the estate of the deceased. You are also the named beneficiaries under the will of the deceased.

You then attended to the administration of the estate. These duties included collecting a refund of an accommodation bond, and the sale of investment trust units.

A capital gain was made on both an accommodation bond and the units in a unit trust.

The deceased estate has incurred substantial legal costs.

The estate has now been fully administered. You - as beneficiaries - will be presently entitled to the capital gain and any other income derived by the trust estate as at the end of the current financial period.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 97,

Income Tax Assessment Act 1997 Section 102-20,

Income Tax Assessment Act 1997 Section 104-1,

Income Tax Assessment Act 1997 Section 109-55,

Income Tax Assessment Act 1997 Section 110-25 ,

Income Tax Assessment Act 1997 Section 112-30 ,

Income Tax Assessment Act 1997 Section 115-25 ,

Income Tax Assessment Act 1997 Section 115-100,

Income Tax Assessment Act 1997 Section 115-215,

Income Tax Assessment Act 1997 Section 116-40,

Income Tax Assessment Act 1997 Section 128-10,

Income Tax Assessment Act 1997 Section 128-15,

Income Tax Assessment Act 1997 Subsection 128-15(2) and

Income Tax Assessment Act 1997 Subsection 128-15(5).

Reasons for decision

These reasons for decision accompany the Notice of private.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or a capital loss as a result of a CGT event happening. The most common CGT event happens if you dispose of a CGT asset.

Generally, any capital gain or capital loss made when an asset of the deceased passes to the legal personal representative is disregarded. Recognition of any gain or loss accruing during the life of the deceased is deferred until the estate, or the beneficiary, disposes of the asset.

As the executors of the estate you are the deceased's legal personal representatives. Any capital gain or loss made by a legal personal representative when passing an asset to a beneficiary is disregarded.

In your case, as trustee, you acquired the accommodation bond and the units at the time of the deceased's death. You then collected a refund of the accommodation bond, and sold the units. This was a CGT event, however the capital gain included in the net income of the estate will be assessable in the hands of the presently entitled beneficiary.

Question 2

As the assets are acquired by you after 20 September 1985 and were subsequently sold and did not pass to the beneficiary the capital gain is not disregarded.

Question 3

You can use the discount method to calculate your capital gain if:

· you are an trustee.

· a CGT event happens to an asset you own.

· you acquired the asset at least 12 months before the CGT event

· the CGT event happened after 11.45am on 21 September 1999.

· In your case:

· you are an trustee.

· The refund of the deposit bond and the sale of the units is a CGT event.

· The asset was held for longer than 12 months.

· the CGT event took place after 21 September 1999.

You can then use the discount method to calculate your capital gain.

Question 4

When calculating a capital gain on an asset, you first need to calculate the cost base of an asset. If you have acquired an asset as a legal personal representative of a deceased person your cost base is considered to be the same as if you were the deceased, provided that the asset was acquired after September, 1985.

The cost base of a CGT asset is made up of five elements:

1. Money or property given for the asset

2. Incidental costs of acquiring the CGT asset or that relate to that event

3. Costs of owning the asset

4. Capital costs to increase or preserve the value of your asset or to install or move it

5. Capital costs of preserving or defending your ownership of rights to your asset

You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.

As a legal personal representative you would include any amounts in the cost base that the deceased would have been able to include. The costs of the administration of the estate would be included in the cost base as 5^th element costs. Before including the costs of administration in your cost base you will first need to apportion the total administration costs to the capital gain in a reasonable manner.

Your suggested method of pro rating costs of all the estate assets by value would be considered reasonable.

As the assets were acquired more than 12 months before disposal, and as beneficiaries you are individuals, you will be able to use the discount method when calculating a capital gain.