Private ruling: Capital Gains Tax - shares and units - transfer of shares from estate
Published: April 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 28 November 2012

Ruling: Q1: Is the capital gain or capital loss disregarded when a legal personal representative or beneficiary acquires shares through a deceased estate? | A1: Yes | Q2: For capital gains tax purposes, is the cost base of shares acquired from a deceased estate, that were originally purchased by the deceased before 20 September 1985, the market value of the shares on the date of death? | A2: Yes | Q3: For capital gains tax purposes, is the cost base of shares acquired from a deceased estate, that were originally purchased by the deceased on or after 20 September 1985, taken to be the deceased's cost base on the date of death? | A3: Yes

Relevant facts and circumstances: The deceased passed away in November 2012. The Taxpayer was bequeathed a share portfolio. The Taxpayer wants clarification of the Capital Gains Tax implications on the inheriting of the shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 128-10 | Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Subsection 128-15(1) | Income Tax Assessment Act 1997 Subsection 128-15(2) | Income Tax Assessment Act 1997 Subsection 128-15(3) | Income Tax Assessment Act 1997 Subsection 128-15(4)

Reasons for decision: Summary: The capital gain or capital loss is disregarded when a Legal Personal Representative or beneficiary of a deceased estate acquires a CGT asset as per Subsection 128-10 of the Income Tax Assessment Act 1997 (ITAA 1997) which states: 'When you die, a capital gain or capital loss from a CGT event that results for a CGT asset you owned just before dying is disregarded." None of the above exceptions in subsection 104-215 of the ITAA 1997 apply to the taxpayer. When calculating the capital gain or capital loss resulting from the sale of shares inherited though a deceased estate there are specific rules which modify the cost base or reduced cost base of the asset. Section 128-15 of the ITAA 1997 outlines the cost base modification rules of CGT asset in the hands of a beneficiary. For shares acquired by the deceased prior to the 20 September 1985 the first element of the cost base (or reduced cost base) is the market value of the shares on the day the person died (subsection 128-15(4) of ITAA 1997). In this particular case, when calculating the capital gain or capital loss in relation to shares that were acquired by the deceased before the 20 September 1985 the first element of the cost base will be the market value of the shares on the date of death. The first element of the cost base (or reduced cost base) for shares which were acquired by the deceased on or after 20 September 1985 will have the same cost base as the deceased on the day they died (subsection 128-15(4) of ITAA 1997). In this situation, the first element of the cost base for shares which the deceased acquired on or after 20 September 1985 will be the same as the cost base they had on the day they died. The first element of the deceased's cost base on the day they died would be based on the price that they originally paid to acquire the shares.