Edited version of your private ruling

Authorisation Number: 1012462090835

Ruling

Subject: CGT - deceased estate, date of acquisition

Question

Is the deceased the beneficial owner of the property?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2008

Relevant facts and circumstances

Prior to September 1985, related entity A acquired the property to use in their business.

In year ended 30 June 200X related entity A sold the transport business to related entity B for market value, with a lease over the property.

In year ended 30 June 200Y related entity A's Directors executed a letter of intent to transfer the property and assign the lease over the property to the deceased as a consequence of retirement.

In year ended 30 June 200Y a meeting of the Directors was held, approving the transfer of the property, and appointing solicitors to prepare the transfer documents to affect the sale.

In year ended 30 June 200Y the Transfer of Land and the Good Statutory Declaration forms were completed for the sale of the property.

In year ended 30 June 200Y the deceased passed away.

Pursuant to the terms of the deceased's will, the property was devolved to the Legal Personal Representative (LPR) of the deceased's estate to be dealt with in accordance with the terms of the will.

The executed Transfer of Land was not lodged with the State Authority, because the bank refused to release the original Certificate of Title to the property following the deceased's death.

Legal title to the property was retained by related entity A.

The property was included as part of the deceased inventory of assets and liabilities in the Grant of Probate for the deceased's estate.

In year ended 30 June 20ZZ, the property was sold upon the direction of the LPR. Related entity A was named as vendor in the Contract for Sale, as directed by their solicitor.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 109-5

Income Tax Assessment Act 1997 subsection 104-10(1)

Income Tax Assessment Act 1997 subsection 104-10(3)

Reasons for decision

Detailed reasoning

Subsection 109-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that:

In general, you acquire a *CGT asset when you become its owner. In this case, the time when you *acquire the asset is when you become its owner.

If you acquire a capital gains tax (CGT) asset as a result of a CGT event, that is, disposal of an asset, certain rules determine when you are taken to have acquired the asset. These rules depend on which event is involved.

If you entered into a contract to purchase a CGT asset, the time of acquisition is when you enter into the contract.

Acquisition Date

The timing of a CGT event is important because it determines the income year in which you report your capital gain.

Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens on the disposal of a CGT asset. Subsection 104-10(3) of the ITAA 1997 sets the time of CGT event A1 as:

(a) when you enter into the contract for the disposal; or

(b) if there is no contract - when the change of ownership occurs.

If a contract is subject to a condition, it does not affect the time of the making of the contract unless it is a condition precedent to the formation of the contract (Taxation Determination TD 94/89). Contracts subject to a condition precedent to the formation of a contract are not binding until that condition is met. Therefore, a contract for the purposes of CGT event A1, would not come into existence prior to the condition being met.

The differences between conditions precedent to the formation of a contract and conditions precedent to the performance of a contract were discussed in the case Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 511 where Mason J observed that:

There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of the party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.

In your case the intention was to transfer the land to the deceased. Related entity A executed a letter of intent to transfer the property, signed by their Directors, and by the deceased as purchaser. Related entity A's Directors also held a meeting in which they decided to transfer the property to the deceased. The parties did not enter into a formal Contract for Sale of the property, but following the execution of the letter of intent and the meeting of the Directors, the transfer documents were prepared and executed to affect the sale of the property.

In Confidential v FCT [2013] AATA 76, the Heads of Agreement left little room for doubt that the parties to that document had agreed to the sale and purchase of the business. Further, in that case, it expressly stated that the parties had agreed to be bound by the terms of that document. Similarly in your case, the executed letter of intent and subsequent meeting of Directors to agree to the sale of the property made up the contract of the parties' exchange.

Accordingly, CGT event A1 occurred for the sale of the property on the date the letter of intent was executed, and meeting of Directors held. Therefore, this is the date the beneficial ownership of the property was transferred to the deceased.