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Authorisation Number: 1012107475785

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Ruling

Subject: Capital gains tax - deceased estate and shares

Question 1: Is the cost base of the pre-capital gains tax (CGT) shares acquired by the deceased which you acquired from their estate the market value of the shares on their date of death?

Answer: Yes.

Question 2: Is capital gain or capital loss deferred on the pre-CGT shares acquired by the deceased until you dispose of the shares?

Answer: Yes.

Question 3: Is your acquisition date of the shares acquired by the trustee of the deceased estate the date of death of the life interest?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2009

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 are the beneficiary of the deceased estate (the deceased) who died on early 19xx.

Under the deceased's will the life interest had a life interest to the shares from the following trusts:

Estate of deceased estate

· trust A - date of establishment early 1937

· trust B - date of establishment mid 1940, and

· trust C.

The life interest passed away in mid 20xx.

You have lodged your 200X-1X income tax return.

You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling:

Trust Company Limited, Settlement of the deceased estate

· trust A - shares

· trust B - shares

· trust C.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 109-5.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 104-75.

Income Tax Assessment Act 1997 Section 104-85.

Income Tax Assessment Act 1997 Section 102-25.

Income Tax Assessment Act 1997 Section 115-215.

Income Tax Assessment Act 1997 Subsection 104-75(2).

Income Tax Assessment Act 1997 Subsection 104-75(5).

Income Tax Assessment Act 1997 Subsection 104-75(6).

Income Tax Assessment Act 1936 Section 97.

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.

As a presently entitled beneficiary of the deceased's estate your assessable income will include your share of any capital gain made by the trustee.

The trustee of the deceased's estate held assets that where acquired at different times. The trustee held:

· assets that the deceased held at the time of their death

· assets that the trustee acquired after the deceased's death but prior to 19 September 1985; and

· assets that the trustee acquired after the deceased's death and after 19 September 1985.

Assets that the deceased held at the time of his death

Where an asset owned by the deceased subsequently passes to the beneficiary on death of a life tenant any capital gain or capital loss made by the trustee of the estate is disregarded.

In your case, any capital gain or loss that the trustee made on the transfer of these assets to you is disregarded.

As the deceased died prior to 20 September 1985, you are taken to have acquired these shares prior to 20 September 1985 and upon disposal of these shares any capital gain or capital loss you make is disregarded.

Assets that the trustee acquired after the deceased's death but prior to 20 September 1985

If an asset is acquired by the trustee subsequent to the deceased's death the rule that disregards the capital gain or capital loss made on passing of the asset to a beneficiary does not apply. That rule only applies to assets that the deceased owned on their death not to assets that the trustee may have acquired after his death and retained.

The effect of the death of the life interest means that you become absolutely entitled to your share of the assets against the trustees of the estate. CGT event E5 happens at this time. These assets are deemed to be acquired by you when you became absolutely entitled to the assets.

The trustee made a capital gain from CGT event E5 if the market value of the assets at the time of the event is more than their cost base. The trustee made a capital loss if the market value is less than the assets' reduced cost base.

However, any capital gain or capital loss made by the trustee on these is disregarded as the assets were acquired prior to 20 September 1985.

Your acquisition date for these shares is mid 2009, when the life tenant passed away, as this is when you became absolutely entitled to the shares.

Assets that the trustee acquired after the deceased's death and after 20 September 1985

The shares that were acquired after 20 September 1985, are not assets owned by the deceased prior to their death. Therefore, any capital gain or capital loss made on passing of these assets cannot be disregarded.

The effect of the death of the life interest, means that you become absolutely entitled to your share of these assets against the trustee of the estate. CGT event E5 happens at this time.

The trustee made a capital gain from CGT event E5 if the market value of the assets at the time of the event is more than their cost base. The trustee made a capital loss if the market value is less than the assets' reduced cost base.  

As the trustee acquired these assets after 20 September 1985, the capital gain or capital loss made is not disregarded.

Your acquisition date for these shares is mid 2009 on the life interest's date of death, as this is when you became absolutely entitled to the assets of the estate.

Death of life tenant

A form of testamentary trust is created when a beneficiary is granted a life interest in the income earned from certain nominated assets, such as shares. This trust results from the death of a person meaning the estate of the deceased person while it is being administered by the trustee and is not the 'estate of a deceased person'.

The beneficiaries entitled to a share of the residue do not have entitlement to the assets as long as the life tenant continues to have an interest in the assets. Only on the death of a life tenant do the beneficiaries become absolutely entitled to the assets as against the trustee.

Generally, you acquire a CGT asset when you become the owner, but you also can acquire an asset as a result of a CGT event happening or other circumstances.

CGT event E5 occurs when a beneficiary becomes absolutely entitled to an asset of a trust as against the trustee. At this point, the trust is deemed to have disposed of the asset to the beneficiaries for a consideration equal to their market value at that date.

In situations where an absolute entitlement cannot be determined, CGT event E7 is triggered on the disposal of the asset to the beneficiaries. The consequences of both CGT event E5 and E7 are similar. 

You were not absolutely entitled to any assets under the trust, until the death of the life tenant which triggered your entitlement and then only, were you able to call for the assets to be transferred to you.

Where more than one CGT event can apply, the one used is that most specific to your situation. In your case, CGT event E5 is the most appropriate event.

In your case, on the death of the life tenant in mid 2009 you did become absolutely entitled to the assets of the estate against the trustee. The trustee is deemed to have disposed of the shares to you, as a beneficiary, on the death of the life tenant in mid 2009, for a consideration equal of the market value of the shares on that date.

As a beneficiary you will need to include in your income tax return for the 200X-1X income year any capital gain made.