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Ruling

Subject: Capital gains tax - deceased estate - disposal - shares - main residence

Question:

Is the off market transfer of shares to a self managed superannuation fund a capital gain tax (CGT) event?

Answer:

Yes.

Question:

Is any capital gain made a discount gain?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts:

You and another person are joint executors and beneficiaries as tenants in common of a deceased estate.

The deceased passed away after 20 September 1985.

You have provided a copy of the will, which forms part of and should be read in conjunction with this private ruling.

The half share of the deceased's dwelling will be transferred to a beneficiary within two years of death.

The shares owned by the deceased will be transferred in an off market transfer to a beneficiary's self managed superannuation fund.

As at 30 June 2013, the estate will not be fully administered.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 115-15

Income Tax Assessment Act 1997 Section 115-25

Income Tax Assessment Act 1997 Subsection 115-30(1)

Income Tax Assessment Act 1997 Section 118-195

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

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

Income Tax Assessment Act 1997 Subsection 128-15(4)

Income Tax Assessment Act 1936 section 97.

Reasons for decision:

When a legal personal representative or beneficiary acquires assets from a deceased estate they are taken to have acquired them on the date of death

The cost base of the asset in the hands of the beneficiary is determined by looking at when the deceased originally acquired the asset.

Any capital gain or capital loss the legal personal representative makes as the asset passes to a beneficiary of the estate is disregarded.

There are special rules and modifications to the cost base and reduced cost base of CGT assets when in the hands of the beneficiaries or legal personal representative.

For assets acquired by the deceased after 20 September 1985, the cost base or reduced cost base of the asset in the hands of the beneficiary or legal personal representative is the cost base of the asset on the day the deceased passed away.

A discount capital gain can be used if the asset was acquired after 20 September 1985, and if it was disposed of after 21 September 1999, and the asset was held for at least 12 months.

When calculating the discount capital gain, the capital gain is calculated and then decreased by 50%. This in effect halves the capital gain that needs to be included as assessable income.

In your case, you are an executor of a deceased estate. The deceased purchased shares after 20 September 1985.

Therefore, as CGT event A1 has occurred upon the disposal of the shares, the capital gain or capital loss will need to be calculated.

A capital gain is included in the estates assessable income and is taxed at individual marginal tax rates. In calculating the relevant CGT consequences, you work out your capital proceeds from the CGT event, and then you work out the cost base for the CGT asset, and then you subtract the cost base from the capital proceeds.

Present entitlement of the beneficiaries

Generally, beneficiaries cannot enjoy present entitlement to income derived by the estate during the administration of the estate. Income of the estate in income years before administration is complete is the income of the executors and is not income of the beneficiaries.

However, during the administration of a deceased estate, the point may be reached where it is apparent to the executor that part of the net income of the estate will not be required to either pay or provide for debts. The executor in this situation might exercise the discretion, to pay some of the income to, or on behalf of the beneficiaries. The beneficiaries in this situation will be presently entitled to the income to the extent of the amounts actually paid to them or actually paid on their behalf. The fact that the estate has not been fully administered does not prevent the beneficiaries in this situation from being presently entitled to the income actually paid to them or on their behalf.

The beneficiaries are liable to pay tax on the part of the estate's net income that they are presently entitled to.

Note: A beneficiary, who is entitled to a share of a trust's net income which included a net capital gain that has been reduced by the CGT discount, is required to gross up the capital gain by multiplying that gain by two. This allows for the beneficiary to apply any capital loss and then apply the CGT discount.