Edited version of private advice

Authorisation Number: 1052211959016

Date of advice: 16 January 2024

Ruling

Subject: CGT - transfer of property

Question

Was there any capital gains liability to the estate when the property was transferred to the deceased's child?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

The deceased passed away several years ago.

The deceased had a property.

The property was purchased by the deceased a number of years ago.

The property was never the deceased's main residence.

The deceased's child lived in the property prior to the deceased passing.

At the time of the deceased's death there was a mortgage on the property.

The child remained living in the property after their parent's death and paid rent to the estate for remaining in the property.

The deceased's Will gave the deceased's interest in the property to the child.

The child took out a loan using the property as security.

The estate forgave the debt due to claiming interest as a deduction during several financial years as the child was paying rent to remain in the property.

The child was not able to take over the loan from the estate due to not being able to secure finance until a later financial year.

The child transferred an amount to the estate and title transferred to them on the same day.

The estate paid the deceased's outstanding loan with funds in the estate bank accounts prior to transfer of title.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 112-140

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20

Reasons for decision

Broadly stated, the ATO's practice is to not recognise any taxing point in relation to assets owned by a deceased person until they cease to be owned by the beneficiaries named in the will (unless there is an earlier disposal by the legal personal representative or testamentary trustee to a third party

Section 102-20 of the ITAA 1997 states you make a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the CGT event occurring.

Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset.

Subsection 104-10(2) of the ITAA 1997 defines disposal as 'you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.'

Subsection 108-5(1) of the ITAA 1997 defines a CGT asset as any kind of property or a legal or equitable right that is not property.

Subsection 108-5(2) of the ITAA 1997 expands the definition of CGT asset to include a part of, or an interest in, an asset referred to in subsection (1).

Subsection 128-15(3) of the ITAA 1997 provides an exemption to the legal personal representative if a CGT event happens when a CGT asset passes to a beneficiary of the estate.

Section 112-140 of the ITAA 1997 describes the process as allowing one entity (the transferor) to disregard a capital gain or loss it makes from disposing of a CGT asset to another entity (the transferee). Any gain or loss is deferred until another CGT event happens in relation to the asset (in the hands of the transferee.

Paragraph 128-15(1)(b) of the ITAA 1997 states that the key requirement for the operation of section 128-15 as a same asset roll-over on transfer of a CGT asset that was formerly owned by a person that has died from their deceased estate to a beneficiary is the concept of passing.

Subsection 128-20(1) of the ITAA 1997 defines 'passing' as a beneficiary becoming the owner of a CGT asset in any of four specified ways - under the will, an intestacy law, pecuniary legacy, or deed of arrangement.

Note: Neither paragraph 128-15(1)(b) or subsection 128-20(1) of the ITAA 1997 deem there to be a change of ownership. They merely adjust the CGT consequences for some changes of ownership.

Subsection 128-20(3) Any capital gain or capital loss the legal personal representative makes if the asset passes to a beneficiary in your estate is disregarded.

In this case the Commissioner is satisfied that the asset has passed to the beneficiary under the Will.

Therefore, there were no CGT implications to the estate when the property was transferred to the child.