Edited version of private advice

Authorisation Number: 1052184632188

Date of advice: 02 November 2023

Ruling

Subject: CGT - deceased estate

Question

Is the Property you own a pre-capital gains tax (CGT) asset?

Answer

Yes.

An asset will 'pass' to the beneficiary of a deceased estate when the beneficiary becomes absolutely entitled to the asset as against the estate's trustee. Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997, explains the circumstances where the beneficiary of a trust is considered to be absolutely entitled to a CGT asset of the trust as against its trustee. Although this ruling is in draft form it represents the preliminary though considered views of the Australian Taxation Office.

A beneficiary has all the interests in a trust asset if no other beneficiary has an interest in the asset (even if the trust has other beneficiaries).

Such a beneficiary will be absolutely entitled to that asset as against the trustee for the purposes of the CGT provisions if the beneficiary can (ignoring any legal disability) terminate the trust in respect of that asset by directing the trustee to transfer the asset to them or to transfer it at their direction.

Paragraph 2 of Taxation Determination TD 2004/3 Income tax: capital gains: does an asset 'pass' to a beneficiary of a deceased estate under section 128-20 of the Income Tax Assessment Act 1997 if the beneficiary becomes absolutely entitled to the asset as against the trustee of the estate? (TD 2004/3) explains that a CGT asset owned by a deceased person at the time of their death passes to a beneficiary of the deceased's estate if the beneficiary becomes the owner of the asset under the will or in one of the other ways set out in section 128-20 of the Income Tax Assessment Act 1997 (ITAA 1997).

Paragraph 4 of TD 2004/3 explains that while it is clear that an asset has passed to a beneficiary once legal ownership of the asset has transferred to the beneficiary, it is considered that there is nothing in section 128-20 of the ITAA 1997 that makes 'passing' dependent upon the acquisition of legal ownership.

In your case, notwithstanding that you acquired legal ownership of the Property in 20XX, you are taken to have acquired the Property, appropriated to you under the Will, at the date of the Deceased's death in 19XX as you were absolutely entitled to the property. This means you can disregard the capital gain or loss you made on disposal of the Property because it is a pre-CGT asset under subsection 104-10(5) of the ITAA 1997.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in 19XX.

The Property was purchased by the Deceased in 19XX.

The Deceased died in 19XX.

In accordance with the Will, the executor of the Deceased Estate was to hold the Property on trust for you until you reached XX years of age.

The Deceased's Will also named you as sole residuary beneficiary of the Deceased Estate.

The Executor of the Estate passed away while still holding the Property on Trust for you and the Property was eventually transferred into your name in 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-10(5)

Income Tax Assessment Act 1997 subsection 128-15(2)

Income Tax Assessment Act 1997 subsection 128-15(3)

Income Tax Assessment Act 1997 subsection 128-15(4)

Income Tax Assessment Act 1997 section 128-20

Income Tax Assessment Act 1997 section 149-10