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Edited version of private advice
Authorisation Number: 1051540461637
Date of advice: 16 July 2019
Ruling
Subject: Capital gains tax
Question
Will the division of the share portfolio held by the deceased estate into three equal parcels result in a capital gains tax event?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2020
The scheme commenced on
1 July 2019
Relevant facts
Entity A died.
Entity A had a share portfolio.
In the Will, entity A left a life interest in the share portfolio to the children.
The remainder was Willed to the grandchildren.
The children wish to divide the share portfolio into equal portions for the ease of administration purposes.
The executors and trustees of the deceased estate will ask the broker to allocate the shares into sub-accounts.
All shares will remain held by the deceased estate.
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 Division 128,
Income Tax Assessment Act 1997 Section 128-10, and
Income Tax Assessment Act 1997 Section 128-15.
Detailed reasoning
Capital gains tax
Section 102-20 of the ITAA 1997 states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset.
A CGT asset is defined broadly as any kind of property, or a legal or equitable right that is not property. Shares are a CGT asset. Your life interest is also a CGT asset under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset.
Division 128 of the ITAA 1997 sets out what happens if a CGT asset owned by a person just before dying devolves to a legal personal representative or passes to a beneficiary of a deceased estate.
Where a CGT asset passes to a legal personal representative or a beneficiary in a deceased estate, they are taken to have acquired the asset on the date of the deceased's death (section 128-15 of the ITAA 1997).
Taxation Ruling TR 2006/14 Income tax: capital gains tax: consequences of creating life and remainder interests in property and of later events affecting those interests provides relevant information.
Where an asset passes to a remainder beneficiary on the subsequent death of a life tenant, the remainder beneficiary is taken to have acquired the asset when the original deceased owner died. Any capital gain or capital loss that the life beneficiary may have is disregarded under section 128-10 of the ITAA 1997.
In the current circumstances, where the shares are divided into parcels or sub-accounts and remain as assets of the deceased estate, no CGT event will occur on this division. This is because the shares are not being sold or transferred to another entity.