Private ruling: Deceased Estate - Testamentary Gifts
Date of advice: 3 March 2026
Published: 20 April 2026
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: XX/XX/20XX

Ruling: Q1: Will the capital gain that arises when CGT event K3 happens, being when properties are distributed in-specie by the Executor of the Estate to a tax-exempt entity, be disregarded under subsection 118-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: 1. Person X died on XX/XX/20XX (the Deceased). 2. Probate of the Will was granted to the Truste of the Deceased Estate by the Supreme Court on XX/XX/20XX. 3. Clause X of the Will of the Deceased directs that the residue of the estate be held on trust to pay outstanding expenses and that the remaining balance (residual properties) be applied solely for acquiring historically significant artworks for specified collection areas (the stipulation), with the trustee discharged upon providing a receipt from the receiving entity (Beneficiary). 4. The Trustee is given powers under Clause X of the Will to appropriate any part or parts of my estate in or towards the satisfaction of the share or interest of any beneficiary in my estate and for such purpose to determine the value or values of any asset or assets to be so appropriated. 5. The Trustee is proposing to distribute the residual properties in specie to the Beneficiary. Ownership of the properties will be transferred directly to the Beneficiary. No new trust, testamentary or otherwise will be nor is intended to be created by the Trustee as a result of the distribution of the properties. 6. Upon completion of the in-specie distributions, the Estate will be wound up. 7. The Beneficiary is exempt from income tax and is also endorsed as a Deducible Gift Recipient (DGR). 8. The Beneficiary is an Australian resident. 9. The Beneficiary has governance responsibilities for overseeing, approving, and ensuring proper management of all gifts, donations, and bequests received. It holds the authority to make final decisions on the approval of gifts and bequests offered to the entity. 10. As required by section XX of an Act (the Act), the Beneficiary must ensure that all gifts, donations and bequests are used solely for their intended purpose, which the Beneficiary has an obligation to uphold. 11. Pursuant to subsection XX of the Act, the Beneficiary may acquire, hold and dispose of shares and securities. 12. The Beneficiary is responsible for the investment and release of funds donated in accordance with the Act. 13. The Beneficiary confirmed it will accept an in-specie distribution of the properties and will take those assets as a gift and deal with them in accordance with the provisions of the Act and with the policies and procedures governing the management of gifts and donation.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 78A | Income Tax Assessment Act 1997 Division 30> | Income Tax Assessment Act 1997 Subdivision 30-B | Income Tax Assessment Act 1997 Subdivision 30-BA | Income Tax Assessment Act 1997 section 30-15 | Income Tax Assessment Act 1997 subsection 30-15(1) | Income Tax Assessment Act 1997 section 30-212 | Income Tax Assessment Act 1997 Division 50 | Income Tax Assessment Act 1997 section 104-215 | Income Tax Assessment Act 1997 section 108-5> | Income Tax Assessment Act 1997 section 118-60 | Income Tax Assessment Act 1997 subsection 118-60(1) | Income Tax Assessment Act 1997 subsection 118-60(1A) | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: 1. Section 128-15 sets out the general rule that any capital gain or capital loss arising as a consequence of a person's death is disregarded. However, section 104-215 sets out an exception to this rule by providing that CGT event K3 occurs where a CGT asset owned by the deceased immediately before death passes to a beneficiary who is an exempt entity. 2. An exempt entity is defined in subsection 995-1(1) as one whose ordinary and statutory income is exempt from income tax because of Division 50 or under another Commonwealth law. 3. CGT event K3 is taken to occur immediately before death, and the deceased is deemed to have made a capital gain if the market value of the CGT asset at the date of death exceeds its cost base, or a capital loss if the market value is less than its reduced cost base. 4. The Beneficiary is an exempt entity and is also endorsed as a Deductible Gift Recipient (DGR) under Subdivision 30-BA, enabling it to receive tax-deductible gifts and donations. 5. The residual properties fall within the definition of a CGT asset in section 108-5 which includes any kind of property or any legal or equitable right that is not property. 6. Based on the values of the residual properties disclosed to the Supreme Court, the Estate is taken to have made a capital gain under CGT event K3 equal to the difference between their market value at the date of death and their cost base when legal and beneficial ownership passes to the Beneficiary. 7. Section 118-60 overrides the application of section 104-215 and provides an exemption that disregards any capital gain or capital loss arising from certain testamentary gifts of property. Specifically, subsection 118-60(1) states that 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 had it not been a testamentary gift. 8. Subsection 30-15(1) provides that entities can deduct a gift in the situations set out in the table in section 30-15. The table sets out who the recipient of the gift can be, the type of gift that can be made, how much can be deducted and any special conditions that apply. 9. Only gifts made to recipients listed in the table in section 30-15 , or entities endorsed as DGRs in accordance with that table, qualify for a deduction. Gifts 10. The term gift is not defined in the Income Tax Assessment Acts. Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift explains the principles for determining whether a transfer of money or property is a gift for the purposes of Division 30. The principles are established from characteristics identified by the courts, which describe a gift as involving: [1] • a transfer of money or property, • made voluntarily, • without material benefit or advantage received by the donor, and • motivated by benefaction. 11. Paragraph 18 in TR 2005/13 states a gift must involve a real and effective transfer of the beneficial interest in property from the donor to the DGR, such that the donor's ownership and control are fully divested and the recipient obtains full and unconditional ownership. The giver must do everything that is necessary, in accordance with the relevant laws governing the transfer of that kind of property to transfer ownership to the DGR. 12. Under the proposed in-specie distribution, the Trustee will transfer both legal and beneficial ownership of the residual properties to the Beneficiary, thereby giving the Beneficiary full and unconditional control of the Properties. 13. In the absence of any arrangement that would enliven section 78A [2] of the Income Tax Assessment Act 1936 (ITAA 1936), the transfer of the residual properties is considered to satisfy the essential elements of a 'gift' as identified in TR 2005/13. The in-specie transfer represents a voluntary act intended to benefit the Beneficiary without any material advantage being returned to the Estate. 14. The bequest under the Will is subject to a stipulation that does not disqualify it from being characterised as a 'gift' for the purposes of TR 2005/13. The stipulation merely reflects the Deceased's intended use of the funds and does not confer any material benefit on the Estate, nor does it undermine the voluntary or gratuitous nature of the transfer as required by TR 2005/13 that identifies as essential elements in determining whether a transfer constitutes a gift. 15. Whilst the Beneficiary is endorsed as a DGR for both Items 1 and 4 of the table in section 30-15, only Item 1 is relevant. 16. To qualify for a deduction under Item 1, a gift must also satisfy further conditions. These conditions are discussed below. (a) The gift must be one of the following kind ; • money, • property purchased within 12 months of the gift, • trading stock given outside the ordinary course of business, or • property valued by the Commissioner at more than $5,000. The residual properties qualify as property. Both residual properties are valued at above $5,000. Therefore, this condition is satisfied. (b) The gift must be worth at least $2 The residual properties values are above $2. Therefore, this condition is satisfied. (c) The recipient must be in Australia The Beneficiary is in Australia and will therefore satisfy this condition. (d) Recipient must meet any additional conditions set out in Subdivision 30-B The Beneficiary is endorsed as a DGR under Subdivision 30-BA, and is in a category covered by Subdivision 30-B. Therefore, this condition is satisfied. (e) If the property is to be valued by the Commissioner - the requirements of section 30-212 are satisfied Subsection 118-60(1A) ensures that a testamentary gift will still qualify for the exemption under subsection 118-60(1) even if the property has not been valued by the Commissioner at more than $5,000. In this case, the residual properties have market values well in excess of that amount, so it is not necessary to rely on the deeming rule in subsection 118-60(1A). This condition is also satisfied. 17. The Beneficiary is a DGR and has satisfied all the conditions in section 30-15, as the testamentary gift of the residual properties would have been deductible had the gift been made during Deceased's life. The requirements in subsection 118-60(1) are therefore satisfied. Accordingly, the capital gain that would otherwise arise under CGT event K3 in relation to the of the transfer of the residual properties will be disregarded. [1] TR 2005/13 paragraph 13 [2] Section 78A of the ITAA 1936 can operate to deny a deduction where a purported 'gift' involves arrangements that provide a benefit or return to the donor, or where the transaction is not genuinely gratuitous.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .