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Edited version of private advice
Authorisation Number: 1051853964603
Date of advice: 2 July 2021
Ruling
Subject: CGT - deceased estate - transfer of share
Question 1
Will subsection 128-15(3) of the Income Tax Assessment Act 1997 (ITAA 1997), apply to disregard any capital gain or loss made on the transfer of the same shares in AAA Pty Ltd from the Deceased Estate to the beneficiaries of their estate with respect to those shares having previously been transferred from the Deceased Estate of the Deceased's spouse?
Answer 1
No
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
Your spouse passed away.
A few years after your spouse passed away you passed away (the Deceased).
AAA Pty Ltd was incorporated pre-CGT and has been an Australian resident company for income tax purposes since incorporation.
AAA Pty Ltd holds six parcels of farming land, Lots 1-6.
All of the lots were acquired prior to 20 September 1985.
The land holdings are currently the only material assets of AAA Pty Ltd.
The land owned by AAA Pty Ltd has been used in farming businesses carried on by members of the Deceased Family and related entities.
It is agreed that the land owned by AAA Pty Ltd will be divided based on the following:
Child A receiving Lot 1 and 2; and
Child B receiving Lot 3,4,5 and 6.
A few years before the death of the Deceased A Family Agreement (referred to as the Heads of Agreement- HoA) was entered into which purported to deal with the way in which the various farming assets (including in particular the land owned by AAA Pty Ltd) were dealt with.
The Deceased's Will refers to the HoA as the basis upon which the farming assets including the land owned by AAA Pty Ltd were to be distributed between the Deceased's children.
Paragraph X of the Deceased's Will states the following:
Relevant clauses of agreement which detail the obligations of the parties were provided.
A short time later AAA Pty Ltd was placed in voluntary liquidation.
The Deceased's estate will receive, on their behalf, the shares allocated to them from their spouses Deceased's estate in accordance with the directions in the spouses Will.
The Deceased's estate will distribute the shares gained from their spouses' estate to their beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 128-10
Income Tax Assessment Act 1997 section 128-15
Income Tax Assessment Act 1997 section 128-20
Detailed Reasoning
Division 128 of the ITAA 1997 deals with CGT consequences that arise from a deceased estate.
Any capital gain or loss made by the trustee of a deceased estate is disregarded under section 128-15 of the ITAA 1997 if a CGT asset you owned just before dying:
(a) devolves to your *legal personal representative; or
(b) *passes to a beneficiary in your estate.
In this case the assets in question are the shares in AAA Pty Ltd transferred to the Deceased's estate from the deceased estate of their spouse.
As the Deceased did not own the asset before there death, subsection 128-15(3) of the ITAA 1997 can not apply.
As a result, any capital gain or loss made on the transfer of the AAA Pty Ltd shares gained from the spouse's estate out of the Deceased's estate to the beneficiaries will not be disregarded.