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Edited version of private advice
Authorisation Number: 1051809012836
Date of advice: 24 February 2021
Ruling
Subject: Capital gains tax - deceased estates
Question
Will the property 'pass' in accordance with section 128-20 of the Income Tax Assessment Act 1997 (ITAA 1997), such that section 128-15 of the ITAA 1997 will apply to disregard any capital gain or loss for the Trustee of the Trust and the beneficiary determines their relevant cost base in accordance with subsection 128-15(4)?
Answer
Yes
Division 128 of the ITAA 1997 deals with CGT consequences that arise from a deceased estate. Any capital gain or loss made by a trustee of a deceased estate or legal personal representative (LPR) is disregarded under section 128-15 of the ITAA 1997 if an asset of the estate 'passes' to a beneficiary in accordance with section 128-20. The trustee of a testamentary trust is treated in the same manner as the trustee of a deceased estate or LPR for the purposes of applying Division 128 of the ITAA 1997 (PS LA 2003/12). The trustee for the Trust, will be treated for the purposes of subsection 128-15(3) as an LPR at the time when the property is transferred to a beneficiary as provided for in the deceased's will. Therefore section 128-15 applies to disregard any capital gain or loss made by the Trustee of the Trust. As outlined in item 3 of subsection 128-15(4) the beneficiary will have a cost base of market value on the day the deceased died.
This ruling applies for the following period:
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased passed away.
The deceased left a will.
Probate was granted to the executor of the estate.
The will noted that the property be held on trust for the benefit of the beneficiary. The Trust was created by the will of the deceased.
The beneficiary is the sole primary beneficiary and the sole capital beneficiary.
The current assets of the Trust are the property and cash held at the bank.
Immediately prior to the deceased passing the property was the deceased's main residence.
The property is on a subdivided portion of the land that the deceased purchased in pre-CGT. The remainder of the land was split off into separate properties. The property remains a pre-CGT asset.
The beneficiary resided in the dwelling prior to the deceased's passing and continued to reside there until the dwelling was leased out in September 20##, at this point the beneficiary resided in a studio in the backyard of the property until the house on the property ceased to be leased in June 20##. From June 20## the beneficiary resumed residing at the dwelling.
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 128-15
Income Tax Assessment Act 1997 section 128-20
Income Tax Assessment Act 1997 Division 128