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Edited version of your private ruling
Authorisation Number: 1012439801713
Ruling
Subject: Capital gains tax - deceased estate - deductible gift recipient
Question 1:
Does a capital gains tax (CGT) event occur on the transfer of the property to a tax exempt entity that is an endorsed deductible gift recipient (DGR)?
Answer:
Yes.
Question 2:
Is the property bequeathed to an endorsed DGR under your will considered to be deductible gifts?
Answer:
Yes.
Question 3:
Is a tax deduction included in the final income tax return lodged on behalf of you?
Answer:
No.
Question 4:
Does a request for valuation need to be made to the Commissioner?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
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 (the deceased) passed away last year.
Under the deceased's will a deductible gift recipient (DGR) (DGR A) is the sole beneficiary of the deceased's estate.
The deceased estate comprised of shares, property, furniture, cash and other effects.
The deceased owned and resided in the property (the property) as their main residence until approximately X years ago, they then moved into a nursing home.
The property was not used to produce assessable income and the deceased elected to continue to treat it as their main residence for their entire ownership period.
The executor of the deceased's estate will transfer all the assets to DGR A.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-215
Income Tax Assessment Act 1997 Section 118-60
Income Tax Assessment Act 1997 Section 30-15
Income Tax Assessment Act 1997 Section 128-10
Income Tax Assessment Act 1997 Section 128-15
Income Tax Assessment Act 1997 Section 128-20
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.
A capital gain or capital loss occurs when a capital gains tax (CGT) event happens to a CGT asset.
When a person dies, any capital gain or capital loss made by them in respect of a CGT asset they owned just before dying is disregarded, unless CGT event K3 applies.
CGT event K3 happens if a CGT asset owned by the deceased person just before they died passes to a beneficiary that is an exempt entity when the asset passes. The time of the event is just before the deceased died, which means that any resulting capital gain or capital loss is accounted for in the final income tax return lodged on behalf of the deceased, the date of death return.
An exempt entity is one whose ordinary income and statutory income is exempt from income tax.
However, a capital gain or capital loss made from a testamentary gift of property is disregard if the gift would have been deductible had it not been a testamentary gift.
A gift is deductible when:
· it made to a DGR that is in Australia
· satisfy any gift conditions affecting the type of deductible gifts the recipient can received, and
· be property that is covered by one of the listed types.
'Property' has a wide meaning. As well as physical things (such as land and objects), it includes rights and interests that can be owned and have a value (such as shares and ownership rights).
To be tax deductible under this gift type the:
· property must have been purchased by the donor during the 12 months before making the gift
· value of the gift must be $2 or more.
We consider the assets the deceased owned to be tax deductible gifts.
A gift made by an executor in accordance with the terms of a will is a testamentary gift or contribution. Consequently, a gift or contribution that is made under will is not deductible.
Accordingly, the executor of your estate will not be entitled to a deduction for any monetary gifts or contributions made as the executor of your deceased estate.
As a result of an amendment to the tax laws, from 1 July 2005, testamentary gifts of property of any value made to DGR will be exempt from CGT.
In this situation, the deceased has gifted property consisting of money, shares, property and other assets to the DGR A under their will. There is no requirement by the executor of the estate to obtain a valuation of any the gifts regardless of what they are valued at.
Upon the transfer of the above assets to DGR A a CGT event K3 will happen as the assets will pass to the beneficiary, who at that time is an exempt entity.
However, as the DGR A is endorsed as a DGR, and the other conditions listed above have been met, the deceased would have been entitled to a deduction if they had gifted the assets to DGR A during their lifetime.
Therefore, any capital gain or capital loss made on the passing of the assets to the DGR A will be disregarded.