Private ruling: CGT - Deceased Estate - Australian property transfer
Date of advice: 7 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2008. | Year ended 30 June 2015. | Year ended 30 June 2016.
Date scheme commenced: 1 July 2007.

Ruling: Q1: Will the transfer of the property situated in Australia be subject to capital gains tax when transferred to the beneficiaries who are foreign residents? | A1: No.

Relevant facts and circumstances: The deceased came to Australia to study. The deceased purchased a property in their sole name situated in Australia (the property) for a certain amount. The purchase of the property was financed by the deceased's parents and no loan was taken out. The deceased lived in the property for a short time as their main residence. Later the deceased finished their degree and returned to live overseas with no intention of returning to Australia. The property was rented out and continues to be rented out. The deceased lodged income tax returns in Australia up until a few years prior to passing away, declaring the rental income. In the income tax returns lodged the deceased advised that they were not a resident of Australia. The deceased remained a non-resident of Australia for tax purposes and at the time of their passing was a non-resident of Australia. The deceased passed away some years ago overseas. The deceased's sibling has authorised the State Trustees Limited late last year to administer the estate of the deceased. The beneficiaries of the deceased's estate are the deceased's siblings, (the beneficiaries) who reside overseas. The beneficiaries are foreign residents and will take transfer of the property in their names as tenants in common. The following documents are to be read with and form part of the scheme for the purposes of the private binding ruling: • Copy of the title search for the property located in Australia; and • Copy of probate and confirmation that the State Trustees Limited were authorised to administer the estate of the deceased dated late last year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-215 | Income Tax Assessment Act 1997 Subsection 104-215(1) | Income Tax Assessment Act 1997 Subsection 104-215(2) | Income Tax Assessment Act 1997 Subsection 104-215(3) | Income Tax Assessment Act 1997 Section 128-10 | Income Tax Assessment Act 1997 Section 855-15 | Income Tax Assessment Act 1997 Section 855-20 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Summary The transfer of the property situated in Australia will not be subject to capital gains tax when transferred to the beneficiaries who are foreign residents. Detailed reasoning Section 128-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that when a person dies, a capital gain or capital loss from a capital gains tax (CGT) event happening to a CGT asset the person owned just before dying is disregarded. However, section 104-215 of the ITAA 1997 (CGT event K3) sets out an exception to this rule if the CGT asset passes to a beneficiary in your estate who is: 1. An exempt entity; or 2. The trustee of a complying superannuation entity; or 3. A foreign resident. Subsection 104-215(2) of the ITAA 1997 states that if the asset passes to a beneficiary who is a foreign resident, CGT event K3 happens only if: 1. You were an Australian resident just before dying, and 2. The asset (in the hands of the beneficiary) is not taxable Australian property. Taxable Australian property includes taxable Australian real property which is defined in section 855-20 of the ITAA 1997 and includes real property situated in Australia. In this case, the deceased was not an Australian resident just before dying and the property is taxable Australian property; therefore CGT event K3 will not happen. Accordingly, no capital gain or capital loss will happen in relation to the transfer of the property to the deceased's non-resident beneficiaries.