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Edited version of private advice
Authorisation Number: 1052062740272
Date of advice: 5 December 2022
Ruling
Subject: A deed of arrangement to vary the terms of a deceased's will
Question
Can The Estate disregard any capital gain or loss when the property at X ('The Property') was transferred to Person C under the Deed of Family Arrangement in the Estate of Person Y ('The Deed')?
Answer
Yes. Subsection 128-15(3) of the Income Tax Assessment Act 1997 ('ITAA 1997') provides that any capital gain or loss is disregarded where an asset passes from the legal personal representative to a beneficiary of a deceased estate. Having considered your circumstances and the relevant factors, the Commissioner is satisfied that when The Property transferred to Person C under The Deed this constituted an asset passing to a beneficiary under paragraph 128-20(1)(d) of ITAA 1997.
Taxation Ruling TR 2006/14 Income tax: capital gains tax: consequences of creating life and remainder interests in property and of later events affecting those interests provides further guidance on the issues involved when there is a Deed of arrangement to vary the terms of a deceased's will.
This ruling applies for the following period
Income year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Person A, Person B and Person C are the surviving children of the late Person Y and the late Person Z
The Property was purchased in 20xx and the registered owners of The Property were Person C, Person Y and Person Z.
Each registered owner held one-third legal interest as tenants in common in The Property.
The Property was purchased for Person C as their principal place of residence ('PPR').
The Property was neither Person Y's nor Person Z's PPR.
Person Z passed away in 20XX. Upon their passing, Person Y acquired Person Z's one third legal interest in The Property.
Person Y passed away a few months later. The Estate received Person Y's two thirds legal interest in The Property.
Person A and Person B are the trustees, executors, and beneficiaries of The Estate.
Pursuant to the last Will and Testament of Person Y, The Estate was left in equal shares to Person A and Person B.
Person C was not made a beneficiary of The Estate.
The Supreme Court of State issued a grant of probate for Person Y in 20XX.
Letters of Administration for Person Z were annexed with Person Y's Will in 20XX.
The trustees, executors and beneficiaries of The Estate have agreed the manner that they wish to distribute The Estate. This is set out in The Deed.
The Deed provides an arrangement whereby two thirds legal interest in The Property be transferred from The Estate to Person C as their only entitlement to The Estate.
The arrangement was made in lieu of Person C making a claim for provision from The Estate and in lieu of them receiving any other benefit from The Estate.
Person C did not pay any monies in consideration of the arrangement.
The Transfer was made pursuant to the Deed on XX XXX 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 128-10
Income Tax Assessment Act 1997 subsection 128-15(3)
Income Tax Assessment Act 1997 paragraph 128-20(1)(d)