Edited version of private advice

Authorisation Number: 1052224441961

Date of advice: 20 February 2024

Ruling

Subject: CGT - deceased estates

Question

Upon your death will a capital gains tax (CGT) event occur and cause a capital gain or capital loss to be crystallised in relation to your Australian real estate assets?

Answer

No.

This ruling applies for the following periods:

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

You are not a resident of Australia for tax purposes. You do not envisage becoming a resident.

You acquired a half interest in two properties located in Australia.

You have drawn up a Will in order to deal with your Australian assets.

The Will creates a trust benefit for your spouse and your children.

Your spouse and one of your children are non-residents of Australia for tax purposes.

The trustee is a resident trustee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-215

Income Tax Assessment Act 1997 Subsection 104-215(1)

Income Tax Assessment Act 1997 Subsection 104-215(2)

Income Tax Assessment Act 1997 Section 128-10

Income Tax Assessment Act 1997 Section 855-15

Income Tax Assessment Act 1997 Section 855-20

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Section 128-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that when a person dies, a capital gain or capital loss from a capital gains tax (CGT) event happening to a CGT asset the person owned just before dying is disregarded. However, section 104-215 of the ITAA 1997 (CGT event K3) sets out an exception to this rule if the CGT asset passes to a beneficiary in your estate who is:

•         an exempt entity; or

•         the trustee of a complying superannuation entity; or

•         a foreign resident.

Subsection 104-215(2) of the ITAA 1997 states that if the asset passes to a beneficiary who is a foreign resident, CGT event K3 happens only if:

•         you were an Australian resident just before dying, and

•         the asset (in the hands of the beneficiary) is not taxable Australian property.

Taxable Australian property includes taxable Australian real property which is defined in section 855-20 of the ITAA 1997 and includes real property situated in Australia.

In your case, you will not be an Australian resident just before dying and the property is taxable Australian property; therefore CGT event K3 will not trigger. Accordingly, no capital gain or capital loss will be crystallised in relation to your Australian real estate and would not be included in your final return.