Edited version of private advice

Authorisation Number: 1052299197812

Date of advice: 09 September 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question 1

Will a Capital Gain Tax (CGT) event happen on transfer of property or shares from legal personal representative to the beneficiaries of the deceased estate under the agreed deed of family arrangement (DOFA)?

Answer 1

Yes.

Subsection 128-20(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset passes to a beneficiary of a deceased estate if the beneficiary becomes the owner of an asset under a DOFA if:

•                     The beneficiary entered into the DOFA to settle a claim to participate in the distribution of the estate, and

•                     Any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that part of the estate.

The requirements of section 128-20 are satisfied in your particular case - however, the application of section 128-10 means that a capital gain or loss from a CGT event that results for a CGT asset that the deceased owned just before their death is disregarded. The assets are taken to have been acquired by the beneficiaries on the date of the deceased's death.

Question 2

If the answer to question 1 is yes, will capital gains made on those transfers be disregarded under section 128-115 of the ITAA 1997?

Answer 2

Yes, subsection 128-115(3) ITAA 1997 applies to disregard any capital gain or loss the legal personal representative makes if an asset passes to a beneficiary in the deceased estate.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on DD MM 20YY.

The dwelling is located at XXXX (the property).

The deceased acquired the property after 20 September 19XX.

The property was the main residence of the deceased just before they passed away and was not used to produce assessable income at that time.

The property was situated on less than two hectares of land.

The deceased met with a solicitor to prepare their will shortly before they passed away. During this meeting the solicitor took notes on the wishes of the deceased, but no binding will was signed at that time. It was planned that the deceased would attend the solicitors' office to sign the will, however the deceased passed away before doing so (as noted above).

The first application for probate was lodged on DD MM 20YY, which was denied by the court based on the informal will.

A deed of family arrangement was signed between the administrator and surviving siblings of the deceased together with residuary beneficiaries - with the intention of finalizing the estate. This deed was not proceeded with since the requisitions from the court proceeded until MM 20YY.

A letter seeking a grant of administration in favour of a friend of the deceased was made with supporting documentation on DD MM 20YY. This application was denied by the court because the friend had no beneficial interest in the estate and the court would not make a grant to such a person. The court stated that in absence of special circumstances the application in the present form would be rejected. The court further directed that steps to be taken to locate any other wills.

Letters were sent to the various organisations to determine if a pre-existing will existed.

A further application was made for letters of administration was submitted on DD MM 20YY. The court denied the application for letters of administration claiming the specific form was insufficient. They stated that claiming the deceased's circumstances as provided weren't enough and that further facts need to be provided about the deceased's living arrangements and other material facts.

On DD MM 20YY (following a new probate application) the court directed several further steps required including death certificates (rather than extracts of death) and a certified copy of the death certificates of the deceased's parent. Further extracts were sought for the deceased's predeceased sibling and certified copies of the birth certificates of the children. From the birth certificates submitted, the court identified that the deceased had a predeceased sibling, who had not been included in any of the previous requisitions.

Upon identifying this the courts sought further information on the predeceased sibling and his family.

On DD MM 20YY the court directed that since two siblings had predeceased the deceased, then those children are entitled to a share in the estate of the deceased. The court directed further steps be taken.

A secondary legal firm were engaged to assist with the application. The legal advice from the secondary firm was not received until MM 20YY. Due to the delay in receiving this advice, another law firm was engaged to provide advice and assist in drafting the final answer to requisition. After advice was received the final response to the requisition was posted to the Supreme Court on DD MM 20YY.

Letters of administration were received by the solicitor on DD MM 20YY and were ultimately granted on DD MM 20YY to the deceased sibling. The delay with the requisitions were further complicated by the need to send and receive hardcopy documents, and there were often significant delays to receive a response from the court. The answers to the requisitions needed to be made on affidavit to the court which involved the swearing of documents by the administrator. At the time of the above requisitions, only hardcopies were accepted.

After the letters of administration were granted, the family members of the deceased who are entitled to claim on the estate under the Succession Act, have agreed to not bring any claims and wish for the estate to be distributed on the terms of the informal document (unsigned will). A deed of family arrangement was prepared which included numerous family members (all persons eligible according to the Succession Act). The final signatory of the deed of family arrangement was made on DD MM 20YY.

After the deed on family arrangement was signed, steps to transfer the property in line with the deed were undertaken, including Verification of Identity requirements etc. The transfer of the property to a friend of the deceased (in accordance with the original wishes of the deceased per their will notes composed on the meeting with the solicitor on) was completed on DD MM 20YY.

The property has remained vacant since the date the deceased passed away until the date the property was sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 128-10

Income Tax Assessment Act 1997 section 128-20

Income Tax Assessment Act 1997 section 128-115