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Edited version of private advice
Authorisation Number: 1051538492362
Date of advice: 16 July 2019
Ruling
Subject: Capital gains tax and the surrender of a life interest
Question
Will a capital loss be realised on the surrender of the Legal Life Interest?
Answer
Yes as your Legal Life Interest in the Subject Land is considered to be a capital gains tax (CGT) asset you will make a capital loss on its disposal.
Question
Will there be a further CGT event when the remaindermen transfer an interest in the Subject Land back to the life interest holder?
Answer
Yes CGT event A1 occurs when the remaindermen transfer an interest in the Subject Land back to the life interest holder.
Question
Will the above transfer result in a capital gain for the transferors (some portion of which will be a discount capital gain)?
Answer
Yes a capital gain will be realised on the transfer of an interest in the Subject Land back to the life interest holder.
This ruling applies for the following period(s)
Year ended 30 June 20XX.
The scheme commences on
1 July 20XX.
Relevant facts and circumstances
The Deceased was married to You.
You are currently aged XX.
The Deceased passed away.
The Deceased owned the following farming and grazing land (The Land):
· Volume A (the Subject Land);
· Volume B;
· Volume C;
· Volume E;
· Volume F;
· Volume G;
· Volume H; and
· Volume I.
The Land was acquired by the Deceased pre-CGT.
The Deceased and You have a number of children (the Children).
Under the terms of the Deceased's Will (the Will):
· You were appointed as executor and trustee;
· The Deceased gave You a life interest in the Land;
· The Deceased gave the Children a remainder interest in the Land; and
· If any of the Children were to predecease You, their remainder interest would pass to their children who attain the age of 21.
You have remained unmarried and your life interest in the Land has been registered on the title for the Land and is thus a legal life interest (the Legal Life Interest).
You wish to surrender her Legal Life Interest in the Land described as Volume A (the Subject Land) to your Children.
You then wish to have the Subject Land be held by you and your Children equally as tenants in common.
The purpose of the above is to facilitate the lease of a portion of the Subject Land.
The Value of the Subject Land as at the date of the Deceased's death was $XXX,XXX as per a historical Valuer General's value for the year ended 30 June 20XX.
The current Valuer General's value of the Subject Land is $XXX,XXX.
The Valuer General's valuations are reflective of the market value of the Subject Land at the date of the Deceased's death and the date of the proposed transactions.
The life tenant factors published by Revenue XX provide a reasonable apportionment of the value of the Legal Life Interest at the date of the Deceased's death and the date of the proposed transactions.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 108-5
Income Tax Assessment Act 1997 section 112-20
Income Tax Assessment Act 1997 section 116-30
Income Tax Assessment Act 1997 section 128-15