Private ruling: CGT - deceased estate and present entitlement
Published: March 2015
Ruling period: 1 July 2012 to 30 June 20XX | 1 July 2014 to 30 June 20YY

Ruling: Questions and answers | 1. For the financial year ended 30 June 20XX, are the beneficiaries liable to pay tax on any net capital gain derived through the sale of shares from the deceased estate, where they are presently entitled to that distribution? | Yes. | 2. For the financial year ended 30 June 20YY, are the beneficiaries liable to pay tax on any net capital gain derived through the sale of shares from the deceased estate, where they are presently entitled to that distribution? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased passed away. There are there residuary beneficiaries. It is understood the beneficiaries are tax exempt. The beneficiaries are not under any legal disability. Probate was granted. The estate has not been fully administered. The estate comprised of shares in listed companies. During the course of the administration of the estate some of the shares were sold, which resulted in a net capital gain. The net capital gain included both capital gains and capital losses. The executors determined that the residuary beneficiaries were presently entitled. An interim distribution, being the total proceeds from the sale of the shares, was made to the beneficiaries. There will also be another net capital gain on the sale of shares and the proceeds from the sale will be paid to the beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 97 | Income Tax Assessment Act 1936 Section 99 | Income Tax Assessment Act 1936 Section 99A | Income Tax Assessment Act 1997 Section 115-215

Reasons for decision: Summary: Sections 99 and 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to assess the trustee on income to which no beneficiary is presently entitled. However where the beneficiaries are presently entitled to the trust income, under section 97 of the ITAA 1936, the income will be taxed in the hands of the beneficiaries. Taxation Ruling IT 2622 provides the Commissioner's view on present entitlement during the stages of administration of deceased estates. Paragraph 14 of IT 2622 states; During the administration of a deceased estate, the point may be reached where it is apparent to the executor that part of the net income of the estate will not be required to either pay or provide debts, etc. The executor in this situation might in exercise of the discretion, in fact, pay some of the income to, or on behalf of, the beneficiaries. The beneficiaries in this situation will be presently entitled to the income to the extent of the amounts actually paid to them or actually paid on their behalf. The fact that the estate has not been fully administered does not prevent the beneficiaries in this situation from being presently entitled to the income actually paid to, or on behalf of, the beneficiaries. Where a beneficiary is presently entitled to a capital gain on the disposal of a Capital Gains Tax asset and is not under a legal disability, their share of a capital gain realised on the sale will be assessed to the beneficiary due to the operation of section 115 -215 of the Income Tax Assessment Act 1997 and section 97 of the ITAA 1936. | Detailed Reasoning - Application to your circumstances: The executors exercise their discretion to make distribution, from the sale of shares, to the beneficiaries of the estate; the beneficiaries are not under any legal disability, and the estate has not been fully administered. Accordingly, as there is no legal disability and the fact that the estate has not been fully administered does not prevent the beneficiaries from being presently entitled; the beneficiaries are liable for the tax on any net capital gain