Edited version of private advice

Authorisation Number: 5010088985024

Date of advice: 1 February 2023

Ruling

Subject: CGT - deceased estate in-specie share transfer

Question 1

Will the in-specie transfer of the shares in the unlisted investment company by the Executors to the tertiary education institution pursuant to the deceased's Will trigger a capital gains tax event K3 as described in section 104-215 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Paragraph 104-215(1)(a) of the ITAA 1997 states that CGT event K3 occurs when a CGT asset which passes from the deceased to a beneficiary who is an exempt entity pursuant to Division 50 of the ITAA 1997. The tertiary education institution is an exempt entity as it is a public educational institution meeting the requirements of section 50-55 of the ITAA 1997, therefore the in-specie transfer of the shares in the unlisted investment company from the Executors of the deceased's estate to the tertiary education institution will trigger CGT event K3.

Question 2

If the answer to Question 1 is yes, will any capital gain or capital loss from the event be disregarded?

Answer

Yes. Subsection 118-60(1) of the ITAA 1997 provides that a capital gain of loss made from a testamentary gift of property that would have been deductible under section 30-15 of the ITAA 1997 if it had not been a testamentary gift is disregarded.

The tertiary education institution is a deductible gift recipient according to the definition provided in section 30-227 of the ITAA 1997. The gift of property, being an in-specie transfer of shares in the unlisted investment company, would have been deductible to the deceased had it not been a testamentary gift, therefore any capital gain or loss from the event will be disregarded.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased died, leaving behind an estate to be administered in accordance with her will.

Person A and Person B are the executors and trustees ("Executors") appointed under the Will. Probate of the Will was granted to the Executors by the Supreme Court of the relevant State.

The Will contains a direction to the Executors in relation to the distribution of the Deceased's personal effects and items, provides for nine (9) specific bequests of money and a specific gift of family history materials.

The Deceased's personal items have been distributed by the Executors in accordance with the Will and written direction to the Executors in accordance with the Will.

The Executors have paid the 9 specific bequests from the Estate to the respective beneficiaries in accordance with the Will.

The Executors have paid all of the estate debts and funeral expenses.

A registered Australian public tertiary education institution is the sole beneficiary of the rest and residue of the Estate under the Will. The gift is expressed to be for the general purposes of an organ of the tertiary education institution. The Will provides that the tertiary education institution is under no obligation to maintain the gift in perpetuity and there are no strict rules about how the gift is to be administered. The terms of the gift merely refer to an 'example' and 'preference' about how the gift may be applied.

The rest and residue of the estate includes the following:

• Shares owned by the deceased in an unlisted investment company.
• Household furniture and effects.
• Cash in banks.
• Property.
• Monies owing to the deceased by the aforementioned company.

The net assets of the unlisted investment company comprise:

• Cash;
• ASX listed shares;
• Less loan owed by the company to the deceased.
• Less income tax owing to ATO.

The Directors of company are Person A (who is also an Executor) and the Deceased's accountant. Person B is the company secretary (and she is also an Executor).

The tertiary education institution is registered as a charity with the Australian Charities and Not-for-profits Commission ("ACNC") and is endorsed by the Commissioner of Taxation for income tax exemption.

The tertiary education institution is endorsed by the Commissioner of Taxation as a deductible gift recipient and is covered by Item 1 of the table in section 30-15 of the Income Tax Assessment Act 1997 (ITAA 1997).

The tertiary education institution, as the sole beneficiary of the rest and residue of the estate has directed or will direct the Executors to transfer the rest and residue of the estate in-specie to the tertiary education institution (without having to convert the assets).

The Executors are acting at arm's length to the tertiary education institution in execution of the administration of the Estate.

The Executors have fiduciary obligations to the tertiary education institution as the sole beneficiary of the rest and residue of the estate and must act in the tertiary education institution's best interests.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 30-15

Income Tax Assessment Act 1997 section 30-227

Income Tax Assessment Act 1997 section 50-55

Income Tax Assessment Act 1997 section 104-215

Income Tax Assessment Act 1997 paragraph 104-215(1)(a)

Income Tax Assessment Act 1997 section 118-60

Income Tax Assessment Act 1997 subsection 118-60(1)