Edited version of private advice

Authorisation Number: 1051899424333

Date of advice: 14 September 2021

Ruling

Subject: CGT on transfer of shares

Question

Will the transfer of the shares to the executor of an estate be a CGT event?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You advised that:

•         You are a child of C.

•         C executed an enduring power of attorney form appointing you as the attorney for personal/health matters and for financial matters.

•         C's Will appointed you as a joint executor of the estate.

•         C's general medical practitioner and a specialist both made an appraisal of C, forming the opinion that C was not capable of making any major financial decisions, whether they involved the day-to-day life, the Enduring Power of Attorney or the Will.

•         Shares were transferred to you from C after the deceased was held to be incapacitated.

•         C passed away.

•         Probate of the Will was granted to D, as one of the executors.

•         D, as executor, commenced legal proceedings against you to, in part, take possession of the shares that you held.

•         A Deed of Settlement was reached between D and you.

•         Under the Deed of Settlement you transferred shares to D.

•         You did not have beneficial ownership of the shares from the time they were transferred to you until the time you transferred the shares to D.

Relevant legislative provisions

Income Tax Assessment Act 1997, section 100

Income Tax Assessment Act 1997, section 102

Income Tax Assessment Act 1997, section 104

Income Tax Assessment Act 1997, section 106

Income Tax Assessment Act 1997, section 108

Income Tax Assessment Act 1997, section 128

Income Tax Assessment Act 1997, section 995

Reasons for decision

Summary

Capital gains tax on transfer of shares.

Detailed reasoning

Sections 100-25 and 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) define what a capital gains tax (CGT) asset is. Section 102-20 of the ITAA 1997, provides that a taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include shares acquired on or after 20 September 1985.

CGT event A1 occurs when you dispose of a CGT asset (section 104-10 of the ITAA 1997). Subsection 104-10 (20 provides that 'You dispose of a *CGT asset if a change of ownership occurs from you to another entity'. However, subsection 104-10(2) also provides that 'a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

CGT Event E2 applies where you transfer an asset to an existing trust.

Division 128 of the ITAA 1997 sets out what happens when you die and a CGT asset you owned just before dying devolves to your legal personal representative or passes to a beneficiary in your estate.

Section 128-15 of the ITAA 1997 states:

1. This section sets out what happens 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.

2. The *legal personal representative, or beneficiary, is taken to have *acquired the asset on the day you died.

'Legal personal representative' is defined in subsection 995-1(1) of ITAA97 and means:

a) an executor or administrator of an estate of an individual who has died; or

b) a trustee of an estate of an individual who is under a legal disability; or

c) a person who holds a general power of attorney that was granted by another person.

Section 106-50 of the ITAA 1997 provides that:

For the purposes of this Part and Part 3-3 (about capital gains and losses..., from just after the time you become absolutely entitled to a * CGT asset as against the trustee of a trust (disregarding any legal disability), the asset is treated as being your asset (instead of being an asset of the trust).

Application to your circumstances

Legal ownership of the shares was transferred to you before the death of C. However, you did not obtain beneficial ownership of the shares when this transfer was made.

At the time of transfer of the shares by C to you, the deceased was absolutely entitled to the shares. Section 106-50 of the ITAA 1997 applied.

Pursuant to subsection 128-15(2) of the ITAA 1997, D, as his legal personal representative, is taken to have acquired the shares on the date of his death.

At the time of your transferring shares to D, there was not a change of beneficial ownership. CGT event A1 did not arise for you.

Event E2 does not apply to you.

No other CGT event arises in this situation for you.