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Edited version of private advice
Authorisation Number: 1051603261302
Date of advice: 31 October 2019
Ruling
Subject: In-specie gift of shares made under the terms of a will
Question 1
Will any capital gains or losses that are made when an in-specie parcel of shares owned by the deceased is gifted from the deceased estate disregarded under subsection 118-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if the recipient is not endorsed under division 30 ITAA 1997?
Answer
No.
CGT event K3 will happen in this case when the deceased's property passes from the deceased estate to the beneficiary, who is an exempt entity.
Question 2
Will any capital gains or losses that are made when an in-specie parcel of shares is gifted from a deceased estate be disregarded under subsection 118-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if the recipient is endorsed under division 30 ITAA 1997??
Answer
Yes.
CGT event K3 will happen in this case when the deceased's property passes from the deceased estate to the beneficiary, who is an exempt entity.
However, under section 118-60(1) of the ITAA 1997, a capital gain or loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 of the ITAA 1997 had it not been a testamentary gift.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased owned a share portfolio and named two charities as beneficiaries of the shares in her Will.
Both organisations requested that one quarter of the shares held by the deceased be transferred to them in-specie rather than the shares being sold and a cash donation made.
Both organisations are exempt entities under Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997).
Charity A is not endorsed as a Deductible Gift Recipient (DGR) however has associated legal entities that are endorsed including Charity B.
A specific section of the organisations Trust Act says that whenever by any Will a property is given to the charity then the Will is to be construed and operate, and take effect, as though Charity A was named in the Will.
Charity C has been endorsed as a DGR under Division 30 ITAA 1997 and has associated legal entities which are also endorsed as DGRs.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 30
Income Tax Assessment Act 1997 Division 50
Income Tax Assessment Act 1997 Section 104-215
Income Tax Assessment Act 1997 Section 118-60
Income Tax Assessment Act 1997 Section 128-10
Reasons for decision
Charity A
The organisation is an exempt entity under section 50 ITAA 1997 however it is not endorsed as a DGR under section 30 ITAA 1997.
In order for section 118-60 ITAA 1997 to apply any gifts or donations must be made directly to an endorsed DGR.
Subsection 30-15(1) of the ITAA 1997 provides that entities can deduct a gift in the situations set out in the table in section 30-15. The table sets out who the recipient of the gift can be, the type of gift that can be made, how much can be deducted and any special conditions that apply.
Item 1 of the table sets out one of the situations in which a gift can be deducted. Under that item a gift of property must:
· be made to a DGR that is in Australia
· satisfy any gift conditions affecting the type of deductible gifts the recipient can receive, and
· be property that is covered by one of the listed gift types.
Therefore, as Charity A is not endorsed as a DGR, the deceased would not have been entitled to a deduction under section 30-15 of the ITAA 1997 for the gift had it been made during their lifetime.
Charity C
When a person dies, any capital gain or loss made by them in respect of a capital gains tax (CGT) asset they owned just before dying is disregarded, unless CGT event K3 applies (sections 128-10 and 104-215 of the ITAA 1997).
CGT event K3 in section 104-215 of the ITAA 1997 happens if a CGT asset owned by a deceased person just before they die passes to a beneficiary in their estate that, when the asset passes, is an exempt entity. Under subsection 104-215(3) of the ITAA 1997, CGT event K3 is taken to happen just before the deceased's death.
An exempt entity is one whose ordinary and statutory income is exempt from income tax because of Division 50 of the ITAA 1997 (subsection 995-1(1) of the ITAA 1997).
Therefore, CGT event K3 will happen in this case when the deceased's property passes from the deceased estate to the beneficiary, who is an exempt entity.
Under subsection 118-60(1) of the ITAA 1997, a capital gain or loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 of the ITAA 1997 had it not been a testamentary gift.
As Charity C is endorsed under section 30-15 of ITAA 1997 and the deceased would have been entitled to claim a deduction during their lifetime for the gift of in-specie shares any CGT will be disregarded.