Private ruling: CGT - deceased estate
Date of advice: 30 October 2017
Published: March 2018
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the execution of the Deed of Family Arrangement give rise to a capital gains tax event? | A1: No

Relevant facts and circumstances: The deceased died intestate on DDMMYY You have been identified as beneficiaries of the deceased’s estate under the relevant legislation as one of the deceased’s siblings. You and the other beneficiaries intend to enter into a Deed of Family Arrangement in order to make arrangements for the distribution of the deceased’s estate. Letters of administration have not been granted. There has been no distribution of assets from the estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 128-15(3) | Income Tax Assessment Act 1997 Paragraph 128-20(1)(d)

Reasons for decision: Summary: Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out special CGT rules for deceased estates. Under Division 128 of the ITAA 1997 when a person dies a capital gain from a CGT event that results for a CGT asset the person owned just before dying is disregarded. The legal personal representative (or trustee of the estate) is taken to have acquired the asset on the day the deceased died. Under subsection 128-15(3) of the ITAA 1997 any capital gain or loss the legal personal representative makes if the asset passes to a beneficiary in the estate is disregarded. Under paragraph 128-20(1)(d) of the ITAA 1997 a CGT asset passes to a beneficiary of the estate if the beneficiary becomes the owner of the asset under a deed of arrangement where: (i) the beneficiary entered into the deed to settle a claim to participate in the distribution of the estate, and (ii) 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 formed part of the estate. A taxpayer is not required to commence legal proceedings in order to establish, for the purposes of paragraph 128-20(1)(d), that they have a claim to participate in the distribution of the assets of the estate. A claim may be established by a potential beneficiary communicating to the trustee their dissatisfaction with the will. The deed of arrangement must be entered into prior to the administration of the estate being completed unless the beneficiary can demonstrate that a court would, at the time the deed was entered into, have entertained their application for family provision, or an extension of time in which to make such an application. In your case, the deed will be entered into prior to the transfer of assets. Under these circumstances the deed will satisfy paragraph 128-20(1)(d) of the ITAA 1997. As a result, the property will pass to the beneficiaries and any capital gain that the trustee makes on the transfer is disregarded under subsection 128-15(3) of the ITAA 1997. The execution of the Deed of Family Arrangement does not in itself trigger a CGT event however; any subsequent disposal by the LPR or beneficiary is a CGT event which will result in a capital gain or loss.

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