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Edited version of your private ruling
Authorisation Number: 1012487286028
Ruling
Subject: CGT events and present entitlement to income
Question 1
Is there a capital gains tax (CGT) event when the number of executors of a deceased estate is reduced due to the death of an executor?
Answer
No.
Question 2
Are there still beneficiaries who are presently entitled to equal shares of the income of the deceased estate after the death of one of the current beneficiaries?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 200X
Relevant facts
In the Will of the taxpayer there were named beneficiaries, who were entitled to income derived from the residue of the estate, which was to be held in trust during the lifetime of the spouse. The capital assets of the estate (shares) would then be dealt with after the spouse's lifetime. The beneficiaries were also the executors of the estate.
An executor passed away. Their name was removed from the share register as an executor of the estate.
Instructions were sought by an executor from a legal firm on their obligations and duties as a co-executor after the death of the other executor.
Assumptions
The ruling is based on the interpretation by the lawyer, of the application of the clauses of the Will after the death of the beneficiary and co-executor.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 97
Income Tax assessment Act 1997 Section 102-20
Income Tax assessment Act 1997 Section 104-5
Reasons for decision
CGT Event
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the ways you can make a capital gain or a capital loss. This can happen, 'if and only if a CGT event happens'.
Section 104-5 of the ITAA 1997 summarises the potential CGT events. Events are listed such as: disposal, use and enjoyment passing, loss or destruction, creating rights or options and a number of other actions.
In your situation the shares held as part of the deceased estate, remain as assets of the deceased estate. There is only a change in the name of the executors of the deceased estate due to the death of one of the co-executors. There is no CGT event as set out in section 104-5 of the ITAA 1997. Therefore there will be no CGT consequences with the reduction of executors names.
Present entitlement to income
Under the Will, during the lifetime of the spouse, the beneficiaries were entitled to the net annual income derived from the residue of the estate, in equal shares as tenants in common absolutely. The beneficiaries have received these distributions annually up to the time that the beneficiary passed away.
You have sought advice from a lawyer and their interpretation of the Will is: 'that entitlement to a percentage of the income from the rest and residue continues to the benefit of the deceased beneficiaries estate'.
Therefore the trustees of the deceased estate should be distributing this net annual income to the named beneficiaries and to other beneficiaries estate in equal shares and each of these entities will be responsible for the tax payable.