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Edited version of your written advice
Authorisation Number: 1012853103289
Date of advice: 5 August 2015
Ruling
Subject: Capital gains tax: property
Question 1
Is the property considered a pre capital gains tax (CGT) asset of the deceased (person A)?
Answer:
Yes.
Question 2:
Is the executor of a deceased estate required to lodge outstanding tax returns for the deceased?
Answer:
Yes
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts
The deceased relative died before 20 September 1985.
The beneficiaries of the deceased relative's estate were:
• person A
• person B
• person C
The trustees and executors of the will were persons A and C.
The will directed that the property be divided in equal shares as tenants in common to persons A, B and C.
Prior to 20 September 1985 person C shortly after the death of the deceased relative declined any financial benefits from the estate of the deceased relative.
Prior to 20 September 1985 person B sold their interest in the property to person A.
Person A attempted to pay person C for person C's share of the deceased relative estate.
Person C did not accept person's A payment for their share of the deceased relative estate.
Probate to the estate was granted after 20 December 1985.
Person A died after 20 December 1985.
Assumptions
None.
Relevant legislative provisions
Income Tax Assessment Act 1997 - section 128-15
Reasons for decision
On the death of a taxpayer the assets of the estate devolve to the legal personal representative (the trustee or executor) 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 (section 128-15 of the Income Tax Assessment Act 1997)
Further, CGT event A1 happens if you dispose of a CGT asset. The time of the event is when you enter into the contract for the sale or if there is no contract, when the change of ownership occurs.
In addition, a beneficiary may disclaim an interest or entitlement to an estate upon the interest or entitlement in the estate coming to the beneficiary's knowledge. A disclaimer does not need to be effected by a formal deed, however the beneficiary must do some act to show their dissent - mere silence or inactivity is not sufficient to establish that the interest has been disclaimed (see Federal Commissioner of Taxation v. Cornell (1946) 73 CLR 394; 8 ATD 184; 3 AITR 405).
An effective disclaimer, once made, operates retrospectively and not merely from the time of the disclaimer.
To be effective, a disclaimer must be made within a reasonable time of the beneficiary becoming aware of the relevant gift and the gift must be disclaimed in its entirety (see Commissioner of Taxation v. Ramsden [2005] FCAFC 39; 2005 ATC 4136; (2005) 58 ATR 485 (Ramsden)).
Taxation Ruling TR 2006/14 (TR 2006/14) which deals with the CGT consequences of creating and dealing in life and remainder interests. Paragraph 29 of TR 2006/14 states "no CGT event happens to a life interest or remainder owner in respect of the effective disclaimer of their interest."
Application to Person A
In this case while there is no formal deed made to disclaim an interest in the estate of the deceased relative, from the information provided person C disclaimed their interest in the property shortly after the death of deceased relative before 20 September 1985. This is supported by fact that person C did not accept payment for their interest in the estate and as noted above an effective disclaimer, once made, operates retrospectively and not merely from the time of the disclaimer. Therefore it is considered that person C was not presently entitled to their share of the estate of deceased relative and that persons A and B were taken to acquire person C's interest in the property at the date of death of deceased relative before 20 September 1985.
Further as Person B subsequently sold their interest to person A prior to 20 September 1985, the property held by person A at the date of their death is considered a pre-CGT asset of estate of the deceased.
Lodgment of tax returns
As an executor, you have certain tax responsibilities on behalf of the deceased person and the deceased estate, including lodging tax returns on behalf of the deceased person and the trust estate, and providing information to beneficiaries. From the information you have provided the deceased is required to lodge prior-year income tax returns. Therefore as the executor of a deceased estate, you will need to lodge prior-year tax returns on behalf of the deceased.