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Edited version of private advice
Authorisation Number: 1052042187540
Date of advice: 20 October 2022
Ruling
Subject: Capital gains tax
Question
Are capital gains or losses that are made when shares owned by the deceased pass from the deceased estate to the beneficiary disregarded under subsection 118-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if the beneficiary is a deductible gift recipient (DGR)?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 20XX to Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The deceased died in a previous year.
The deceased bequeathed the residue of their estate to a number of charities named in the Will.
These beneficiaries are Deductible Gift Recipients (DGR).
One of the beneficiaries (X) is endorsed as a DGR as the operator of a fund. The fund is not a separate entity to X and has the same ABN. It is merely a fund into which X is required under the relevant gift deduction provisions to receive certain monies. Under the governing rules of X, the fund was established to receive all gifts of money or property for the purpose of supporting the objects/purposes of X.
The residue of the estate includes shares in several companies.
The trustee intends to transfer the shares from the Estate to the beneficiaries in settlement of their entitlement under the Will of the deceased.
X has agreed to provide a direction in writing to the executors to transfer its entitlement to the shares to its fund.
The trustee intends to act on this direction and transfer the entitlement of the organisation directly to the fund.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-60(1)
Reasons for decision
When a person dies, any capital gain or loss made by them in respect of a capital gains tax (CGT) asset they owned just before dying is disregarded, unless CGT event K3 applies (sections 128-10 and 104-215 of the ITAA 1997).
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.
An exempt entity is one whose ordinary and statutory income is exempt from income tax because of Division 50 of the ITAA 1997 (subsection 995-1(1) of the ITAA 1997).
Therefore, CGT event K3 will happen in this case when the deceased's shares pass from the deceased estate to the beneficiaries, who are exempt entities.
Under subsection 118-60(1) of the ITAA 1997, a capital gain or loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 of the ITAA 1997 had it not been a testamentary gift.
As the beneficiaries are endorsed under section 30-15 of ITAA 1997 and the deceased would have been entitled to claim a deduction during their lifetime for a gift of in-specie shares, any CGT liability will be disregarded.