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Edited version of your private ruling
Authorisation Number: 1012463040508
Ruling
Subject: Capital gains tax
Question
Will a capital gain or capital loss be disregarded on the sale of the property by the trustee?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commences 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.
The deceased passed away during the 2012-13 financial year.
The main residence (the property) was purchased after 20 September 1985.
The property was sold during the 2012-13 financial year, all debts paid off and all assets converted to cash.
The majority of the estate was left to the charity.
In accordance with the will the charity was entitled to the residue of the estate after payment of the deceased's debts.
Under the will, the trustee had the ability to either sell the property or to transfer it to the charity. The charity did not want the property and it was therefore sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-215.
Income Tax Assessment Act 1997 Subsection 118-195(1).
Income Tax Assessment Act 1997 Section 128-10.
Income Tax Assessment Act 1997 Section 128-15.
Reasons for decision
Summary
The trustee of the estate sold the property and the proceeds were given to the charity. As the property did not pass to the charity, CGT event K3 cannot occur. As the property was sold within two years of the date of death, the capital gain can be disregarded.
Detailed reasoning
Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that when a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset the person owned just before death is disregarded (section 128-10 of the ITAA 1997).
Where the asset devolves to the legal personal representative (the executor of the estate) or passes to a beneficiary of the deceased estate the executor or beneficiary is taken to have acquired the asset on the day the person died. Any capital gain or capital loss the legal personal representative makes if the asset passes from the executor to the beneficiary is disregarded (subsection 128-15(3) of the ITAA 1997).
However, Division 128 does not apply if the CGT assets pass to a beneficiary who is an exempt entity, also known as a tax advantaged entity (i.e. an entity whose income is exempt from income tax). In these circumstances, section 104-215 of the ITAA 1997 applies and CGT event K3 happens.
CGT event K3 happens if a CGT asset owned by the deceased person just before they die passes to a tax advantaged entity (section 104-215 of the ITAA 1997). Under subsection 104-215(3) of the ITAA 1997, CGT event K3 is taken to happen just before the deceaseds death.
However, when the executor sells the assets and then distributes the proceeds to the beneficiary, CGT event K3 cannot happen as the assets owned by the deceased just before death never pass to the beneficiary.
In this case, the charity did not want the property and therefore the trustee sold it. After payment of the deceaseds debts, the remainder of the cash was given to the charity.
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
........... | |||
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case, the deceased acquired the property after 20 September 1985. They passed away during the 2012-13 financial year. The property was their main residence and was sold during the same financial year by the trustee. Therefore, you will be able to disregard the capital gain from the sale of the property.