Edited version of private advice

Authorisation Number: 1052325018275

Date of advice: 5 November 2024

Ruling

Subject: CGT - deceased estates

Question 1

Are each of the gold bars capital gains tax (CGT) assets within the meaning of section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Are each of the gold bars considered personal use assets within the meaning of section 108-20 of the ITAA 1997?

Answer

No.

Question 3

If the gold bars are CGT assets, is the Estate of the deceased liable to pay CGT on the distribution of the gold bars to each of the beneficiaries?

Answer

No.

Question 4

If the gold bars are a personal use asset, does the character of the gold bars change in the hands of the Executor or beneficiaries?

Answer

n/a.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On XX XX 20XX, the deceased (the Deceased) purchased XX units of gold bars, weighing 5oz.

At the time of purchase, each gold bar was valued at $X,XXX.XX.

On XX XX 20XX the Deceased passed away and left a Will.

The Will provides for the gold bars at Clause 6 (Specific Gifts):

•         I give XX 5oz gold bars to my [Spouse] if [they] survive me;

•         I give my remaining gold bars...to my Executor to be held upon trust for my Grandchildren who survive me and attain the vesting age.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 108-20

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20

Question 1

Are each of the gold bars capital gains tax (CGT) assets within the meaning of section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The gold bars are a form of property and accordingly are CGT assets within the meaning of section 108-5 of the ITAA 1997.

Detailed reasoning

Subsection 108-5(1) of the ITAA 1997 provides that a CGT asset is:

(a)   any kind of property; or

(b)   a legal or equitable right that is not property.

Personal property includes all forms of property, other than real property. Whether gold bars constitute CGT assets depends on the intention you have when you acquire them, and the way in which you use them.

The gold bars are a form of property and accordingly are CGT assets within the meaning of section 108-5 of the ITAA 1997.

Question 2

Are each of the gold bars considered personal use assets within the meaning of section 108-20 of the ITAA 1997?

Summary

The gold bars were purchased in 20XX and are to be held on trust until the vesting age of the beneficiaries nominated in the Will, they are personal use assets in accordance with the CGT provisions and were acquired by the Deceased for personal use and enjoyment as outlined in section 108-20 of the ITAA 1997.

Detailed reasoning

A personal use asset is outlined in section 108-20 of the ITAA 1997 as capital gains tax assets, other than collectables, that are used or kept mainly for personal use and enjoyment of you or your associates.

There are three categories of personal use assets as defined in subsection 108-20(2) of the ITAA 1997 as follows:

•         CGT assets used or kept mainly for personal use or enjoyment.

•         certain options and rights, and

•         certain debts.

An asset has to provide an individual with a source of pleasure or relate directly to that individual to be a 'personal use' asset. An asset cannot be a personal use asset if it is mainly acquired, kept or used as an investment, as part of a business or for a profit-making purpose.

Taxation Ruling (TR) 92/3 Income tax: whether profits on isolated transactions are income outlines when profits from isolated transactions are income. Generally, the profit from an isolated transaction will be income where:

•         your intent or purpose in entering into the transaction was to make a profit or gain; and

•         the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.

Where the activities do not amount to carrying on a business and the transaction is not entered into in carrying out a business operation or commercial transaction, then any gain will be dealt with under the CGT provisions (as capital).

The gold bars were purchased in 20XX and are to be held on trust until the vesting age of the beneficiaries nominated in the Will, they are personal use assets in accordance with the CGT provisions and were acquired by the Deceased for personal use and enjoyment as outlined in section 108-20 of the ITAA 1997.

Question 3

If the gold bars are CGT assets, is the Estate of the deceased liable to pay CGT on the distribution of the gold bars to each of the beneficiaries?

Summary

Division 128 of the ITAA 1997 deals with the CGT consequences that arise from a deceased estate, the effect of Division 128 is to disregard any capital gain or capital loss arising from such an event upon the death of the taxpayer, when assets are transferred to the Executor or beneficiary, pursuant to the terms of the Will.

Any capital gain or loss made by a trustee of a deceased estate is disregarded under section 128-15 of the ITAA 1997. Subsection 128-15(4) sets out the modifications to the cost base, item 1 of the table provides that the first element of the asset's cost base is the cost base of the asset on the day the deceased died.

Detailed reasoning

Division 128 of the ITAA 1997 deals with the CGT consequences that arise from a deceased estate. Any capital gain or loss made by a trustee of a deceased estate (or a legal personal representative (LPR)), is disregarded under section 128-15 of the ITAA 1997 if an asset of the estate 'passes' to a beneficiary in accordance with section 128-20 of the ITAA 1997. Section 128-20 provides that an asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset under your will.

The trustee of a trust is treated in the same manner as the trustee of a deceased estate or LPR for the purpose of applying Division 128 of the ITAA 1997.

Subsection 128-15(4) sets out the modifications to the cost base and reduced cost base of a CGT asset in the hands of an LPR or beneficiary. Item 1 of the table provides that for a CGT asset that you [the deceased] acquired on or after 20 September 1985, the first element of the asset's cost base is the cost base of the asset on the day the deceased died.

Question 4

If the gold bars are a personal use asset, does the character of the gold bars change in the hands of the Executor or beneficiaries?

Summary

Personal use assets are a specific category of CGT asset, which are used for the taxpayer's or associate's personal use or enjoyment in accordance with section 108-20 of the ITAA 1997. The character of the gold bars, as personal use assets, do not change in the hands of the Executor or beneficiaries.

Application to your circumstances

XXX purchased the gold bars in 20XX, the gold bars are a form of property and accordingly are CGT assets within the meaning of section 108-5 of the ITAA 1997.

The gold bars are to be held on trust until the vesting age of the beneficiaries nominated in the Will, they are personal use assets in accordance with the CGT provisions and were acquired by the Deceased for personal use and enjoyment as outlined in section 108-20 of the ITAA 1997.

The effect of Division 128 is to disregard any capital gain or capital loss arising upon the death of the taxpayer, when the assets are transferred to the Executor or beneficiary, pursuant to the terms of the Will.