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Edited version of private advice
Authorisation Number: 1051657768718
Date of advice: 14 April 2020
Ruling
Subject: Capital gains tax
Question
Did CGT Event E2 happen when Individual A's estate transferred shares to Trust A?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Individual A passed away X April 20XX. At the time of their death they held several ASX listed shares (the shares). You were one of the executors of their estate.
Individual A's will provided two-thirds of the residue of the estate passed to Individual B. The residue included the shares.
On X July 20XX the Trust A was established as a discretionary trust. Individual B was the trustee and one of the beneficiaries.
In November and December 20XX off market share transfers were completed transferring for no consideration the shares from Individual A's Estate to Trust A.
The share transfer forms show Individual B has executed the transfers as executor of Individual A's estate, choosing to designate the shares to Trust A.
No capital gains were reported in respect of the transfer of shares.
In the year ended 30 June 20XX Individual B reported distributions from Trust A.
Individual B passed away X November 20XX. Executors are in the process of finalising the estate.
Relevant legislative provisions
Section 104-60 of the Income Tax Assessment Act 1997
Section 116-30 of the Income Tax Assessment Act 1997
Reasons for decision
Section 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax (CGT) event E2 occurs when you transfer a CGT asset to an existing trust. The time of the event is when the asset is transferred.
In this case, Individual B inherited the shares from Individual A's estate as provided under their will. Despite the shares not legally transferring to Individual B, they held ownership and control of the shares. Individual B designated the shares be transferred to Trust A in November/December 20XX on share transfer forms. CGT event E2 has occurred in the year ended 30 June 20XX when Individual B transferred the shares into the existing trust.
There is an exception to CGT event E2 under subsection 104-60(5). Individual B was not the sole beneficiary of Trust A therefore the exception does not apply.
You will make a capital gain if the capital proceeds from the transfer of the asset to the trust are more than the asset's cost base. When an asset is transferred to an existing trust for an amount other than its market value, the capital proceeds from CGT Event E2 are equal to the market value at the time the transfer is made (section 116-30 of the ITAA 1997).
As the shares were transferred for no consideration, the market value will be the capital proceeds in calculating any capital gain or loss from CGT event E2.