Private ruling: Deceased estate
Date of advice: 19 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the distribution of the net proceeds (from the sale of a main residence) to the exempt entities trigger capital gains tax (CGT) event K3? | A1: No. | Q2: Will CGT event K3 happen when the properties are gifted to exempt entities? | A2: Yes. | Q3: If the answer to question 3 is yes, will any capital gain (or loss) from CGT event K3 be disregarded? | A3: Yes. | Q4: Will CGT event K3 happen when the shares are gifted to exempt entities? | A4: Yes. | Q5: If the answer to question 5 is yes, will any capital gain (or loss) from CGT event K3 be disregarded? | A5: Yes. | Q6: Will the distribution of the net proceeds of the Superannuation Fund to the exempt entities trigger CGT event K3? | A6: No.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: ● the application for private ruling, ● the sealed Grant of Probate, and ● the will and codicils. The individual died in 2016. The estate was made up of various assets including properties, shares and the balance in superannuation. All beneficiaries are exempt entities under Division 50 of the ITAA 1997. Each beneficiary is a deductible gift recipient under section 30-15 of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 30-15 | Income Tax Assessment Act 1997 subsection 30-15(2) | Income Tax Assessment Act 1997 Division 50 | Income Tax Assessment Act 1997 section 104-215 | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 995-1

Reasons for decision: Summary: Main residence Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985, or ● the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased’s main residence just before the deceased’s death and was not then being used for the purpose of producing assessable income, and ● your ownership interest ends within 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). CGT event K3 When a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset the person owned just before death is disregarded. Where the asset devolves to the executors of the estate or passes to a beneficiary of the deceased estate the executor or beneficiary is taken to have acquired the asset on the day the person died. Any capital gain or capital loss the executor makes if the asset passes from the executor to the beneficiary is disregarded. However CGT event K3 happens if a CGT asset owned by a deceased person just before they die passes to a beneficiary of their estate who is an exempt entity. CGT event K3 is taken to happen just before the deceased's death. An exempt entity is one whose ordinary and statutory income is exempt from income tax because of Division 50 of the ITAA (subsection 995-1(1) of the ITAA 1997). Application to your circumstances In this case the main residence was sold and any capital gain or loss made on the property will be disregarded under subsection 118-195(1) of the ITAA 1997. CGT event K3 will not occur when the proceeds are distributed to the relevant beneficiaries. | Detailed Reasoning - Question 2 and 3: Deductions for gifts You may deduct a gift or contribution that is made in the situations set out in the table contained within section 30-15 of the ITAA 1997. Item 1 of the table sets out one of the situations in which a gift can be deducted. Under that item a gift of property must: ● be made to a DGR that is in Australia ● satisfy any gift conditions affecting the types of deductible gifts the recipient can received ● be property that is covered by one of the listed gift types. The gift types include property valued by the Commissioner at more than $5,000. Subsection 30-15(2) of the ITAA 1997 states that a testamentary gift or contribution is not deductible under this section. Gifts of property However, under section 118-60 of the ITAA 1997 a capital gain or capital loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 of the ITAA 1997 had it not been a testamentary trust. In this case, several properties will be gifted to the exempt entities. CGT event K3 will happen when the assets pass to the beneficiaries and the time of the event is just before the deceased passed away. However, the gift of the properties would have been deductible had it not been made by a testamentary trust. Accordingly, any capital gain or capital loss made from CGT event K3 happening is disregarded. | Detailed Reasoning - Question 4 and 5: As discussed above, CGT event K3 will happen when the shares are gifted to the beneficiaries. However, the gift of the shares would have been deductible had it not been made by a testamentary trust. Accordingly, any capital gain or capital loss made from CGT event K3 happening is disregarded. | Detailed Reasoning - Question 6: The distribution of the proceeds received by the trustee from the superannuation fund will not result in a CGT event.