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Edited version of your written advice
Authorisation Number: 1012913417328
Date of advice: 3 December 2015
Ruling
Subject: Capital gains tax - deceased estate - absolute entitlement
Question
Was 'A' absolutely entitled to the dwelling as against the trustee of the 'B' estate?
Answer
Yes.
This ruling applies for the following period(s)
Year ended 30 June 2015.
The scheme commences on
1 July 2014.
Relevant facts
The arrangement that is subject of the private ruling is described below. This description is based on a number of documents. These documents form part of, and are to be read with this description.
The deceased acquired a dwelling (the dwelling) prior to 20 September 1985.
The deceased passed away in 19XX.
The deceased's child, ('A') was the sole beneficiary and executor of the estate.
'A' resided in the dwelling.
'A' did not obtain probate of the deceased's estate.
'A' was eventually unable to live independently and was diagnosed with a medical condition.
The medical report of 20XX (medical report) states that a procedure was performed a number of years earlier.
The medical report states that 'A' had the medical condition for a number of years prior to the date of the report.
An organisation (the organisation) was appointed by the relevant court to act as administrator for 'A' in 20XX.
'A' moved out of the dwelling and into permanent residential care in 20XX.
The organisation obtained probate in 20XX.
The organisation prepared the dwelling for sale as 'A' was unable to move back into the dwelling.
The dwelling was sold by the organisation as executor of the estate in 20YY with settlement occurring in 20YY.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 subsection 106-50
Summary
'A' was absolutely entitled to the property as against the Trustee. Therefore, section 106-5 of the Income Tax Assessment Act 1997 (ITAA 1997) applies.
Detailed reasoning
When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset.
Ownership conveys an entitlement to exercise the maximum legally permissible rights over what is owned. In the absence of evidence to the contrary, property is considered to be owned by the person(s) registered on the title. However, in limited circumstances it is possible for legal ownership to differ from beneficial/equitable ownership for taxation purposes.
Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner.
When is a beneficiary absolutely entitled to a CGT asset?
It is considered that a beneficiary is absolutely entitled to a CGT asset of a trust as against the trustee if the beneficiary is:
• absolutely entitled in equity to the asset and thus has a vested, indefeasible and absolute interest in the asset, and
• able to direct how that asset shall be dealt with.
Under the trust arrangement in this case, 'A' had a vested, indefeasible and absolute interest in the asset from the deceased's date of death. 'A' was the sole beneficiary of the deceased estate and considered the property their own, and all parties treated it as such. Therefore, 'A' was absolutely entitled to the property as against the trustee.
Because 'A' was always absolutely entitled to the property as against the trustee, everything done by the trustee in relation to the property, including its disposal is taken to have been done by the beneficiary: section 106-50 of the ITAA 1997. Therefore, for the purposes of the capital gains tax provisions in Parts 3-1 and 3-3 of the ITAA 1997, the beneficiary is taken to have disposed of the dwelling on settlement.