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Edited version of private advice
Authorisation Number: 1012686614020
Ruling
Subject: CGT - deceased estate
Questions and answers
1. Can the Trustee of the deceased estate disregard a capital gain or loss when the shares in the deceased estate pass to a beneficiary?
Yes
2. Is there a CGT event E2 when the beneficiary transfers shares, received under the deceased's Will, to the family trust?
Yes.
This ruling applies for the following period:
1 July 20XX to 30 June 20YY
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.
Probate was granted and the distributions from the Estate were finalised with 12 months.
Under the deceased Will the Trustee of the Estate was directed to distribute post Sept 1985 shares to the three beneficiaries; beneficiary 1, beneficiary 2 and beneficiary 3.
Beneficiary 1 and 2 received their shares directly.
At the direction of beneficiary 3, the Trustee of the deceased estate, distributed beneficiary 3's shares into beneficiary 3's family trust.
It was the understanding of all beneficiaries and the beneficiaries understanding the deceased wished for beneficiary 3's shares, from the deceased's estate, to be distributed to beneficiary 3's family trust upon the deceased's passing.
The family trust was not a beneficiary under the Will.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-60
Income Tax Assessment Act 1997 Division 128
Income Tax Assessment Act 1997 subsection 128-15(2)
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not considered the application of Part IVA to the arrangement you asked us to rule on.
Reasons for decision
You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.
Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens when a person dies and a CGT asset they owned just before dying devolves to their trustee or passes to a beneficiary of their estate.
Under Division 128 of the ITAA 1997 when a person dies a capital gain or capital loss from a CGT event that result from a CGT asset the person owned just before dying is disregarded.
In accordance with subsection 128-15(2) of the ITAA 1997, a legal personal representative or a beneficiary is taken to have acquired the asset on the day the deceased died.
Any subsequent disposal by the executor or beneficiary is a CGT event which will result in a capital gain or loss.
Section 104-60 of the ITAA 1997 provides that CGT event E2 happens if you transfer a CGT asset to an existing trust. Under Section 104-60 of the ITAA 1997, the time at which CGT event E2 occurs is when the asset is transferred.
Application to your circumstances
As the shares were received by beneficiary 3 under the Will any capital gain or loss can be disregarded by the Trustee of the deceased estate.
Although it was the understanding of all beneficiaries and the beneficiaries understanding the deceased wished for beneficiary 3's shares, from the deceased's estate, to be distributed to beneficiary 3's family trust, the family trust was not a beneficiary under the deceased's Will.
Consequently, for taxation purposes, a CGT E2 event occurred when the shares were transferred, at beneficiary 3's direction, by the Trustee, to beneficiary 3's family trust.
Therefore there will be capital gain or loss to beneficiary 3 on the disposal of the shares to the family trust.