Private ruling: Capital Gains Tax
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Can you disregard any capital gain or loss on the transfer of the deceased estate property to your company? | A1: Yes

Relevant facts and circumstances: You currently owe money to your private company. You just inherited a deceased estate property. This property was the deceased's main residence just before their death. The property was not being used to produce income just before their death. You want to transfer the property to your private company to satisfy your debt. The transfer of the property to your company will happen within two years from the date of deceased's death. The property was acquired by the deceased in 1986.


Reasons for decision: Summary: Post capital gains tax (CGT) assets are those acquired after 20 September 1985. CGT event A1 happens on the disposal of a post CGT asset from one entity to another as per section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). The term 'entity' is defined in section 960-100 of the ITAA 1997 and includes a body corporate - paragraph 960-100(1)(b) of the ITAA 1997. Where a legal person, such as a body corporate, has a number of different capacities in which the person does things, subsection 960-100(3) of the ITAA 1997 provides that the person is taken to be a different entity in each of those capacities. It follows from this that a body corporate acting in its capacity as a trustee of a trust is a different and distinct entity from the same body corporate acting in its own capacity. You and your company are different entities therefore the transfer of an asset from one to the other will trigger CGT event A1. However, there are a number of exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event is disregarded, either in full or in part. One such exemption relates to the disposal of a dwelling you acquired as the trustee of a deceased estate. Section 118-195 of the ITAA 1997 outlines the conditions under which a capital gain or capital loss can be disregarded in this situation. Section 118-195 of the ITAA 1997 provides that a capital gain or capital loss can be disregarded when: a beneficiary or trustee disposes of their ownership interest in the dwelling that was the main residence of the deceased prior to their death, within two years of the deceased's death; or · from the deceased's death until the beneficiary or trustee disposes of their ownership interest, the dwelling was not used to produce income and was the main residence of one or more of: · the spouse of the deceased immediately before death (except a spouse who was living permanently separately apart from the deceased); · an individual who had the right to occupy the dwelling under the deceased's will; or · an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary. The ownership interest of a beneficiary or trustee commences on the date of death of the deceased (section 128-15 of the ITAA 1997), and ends on the disposal of the dwelling when your legal ownership ends (section 118-130 of the ITAA 1997). | Detailed Reasoning - Your case: The deceased acquired the property in question in 1986. Therefore this property is a post CGT asset. It was deceased's main residence just before their death and it was not being used to produce income at that time. The transfer of the property to your company will take place within two years from the date of deceased's death. This transfer will be a change in ownership from you as beneficiary of deceased estate to you as director of your private company and will trigger a CGT event A1. Therefore as per section 118-195 of the ITAA 1997, you can disregard any capital gain or loss on the transfer of this property to your company.

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