Edited version of private advice

Authorisation Number: 1051634619723

Date of advice: 11 March 2020

Ruling

Subject: Income tax - deceased estate

Question 1

Does CGT event K3 apply to the gifts made by the deceased in their will dated, to the residuary beneficiaries described in the will?

Answer

No.

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.

In this case, the assets did not pass to the residuary beneficiaries, rather the shares were sold by the executors, and therefore CGT event K3 did not happen.

Question 2

Will the executors of the estate be assessed under either section 99 or 99A of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of income to which the residual beneficiaries are presently entitled in the income year ended 30 June 20XX?

Answer

No.

In this case, the executors disposed of the assets of the estate and paid amounts to the residual beneficiaries during the year ended 30 June 2019. As a direct result of the sale of those shares a net capital gain has been made. The estate advised the residuary beneficiaries confirming the nature of these distributions and the progress of the administration of the estate. The estate is not fully administered, but the residual beneficiaries were presently entitled to the income actually paid to them.

Section 97 of the ITAA 1936 operates to include in the assessable income of the beneficiary, their share of the net income of the trust. Section 99 and 99A of the ITAA 1936 does not apply to you, as this operates to assess the trustee on the income to which no beneficiary is presently entitled.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away in 20XX leaving a will dated 30 June 20XX. The will provided certain specific bequests that dealt with the deceased's residuary estate where one-third was equally shared to three endorsed deductible gift recipients.

Probate was granted to the executors in 20XX.

The assets comprised of property, bond, term deposits and shares.

After the several minor bequests, specific monetary gifts and the liabilities were provided by the estate, the residuary estate was left in equal shares to the nominated deductible gift recipients.

The shares did not pass to the residuary beneficiaries, rather the executors disposed of the shares and a net capital gain arose.

Cash distributions were equally made to the residuary beneficiaries in one-third shares in the income year ended 30 June 20XX.

Each of the residuary beneficiaries was entitled to an amount of the income.

The executors of the estate advised the residuary beneficiaries confirming the nature of these distributions and the progress of the administration of the estate.

The estate is not fully administered.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 95

Income Tax Assessment Act 1936 section 97

Income Tax Assessment Act 1936 section 99

Income Tax Assessment Act 1936 section 99A

Income Tax Assessment Act 1936 section 104-10

Income Tax Assessment Act 1936 section 104-215