Private ruling: Transfer of securities to a deductible gift recipient
Date of advice: 21 August 2017
Published: December 2017
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Are capital gains or losses that are made when securities owned by the deceased pass from the deceased estate to the beneficiary disregarded under subsection 118-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if the beneficiary is a deductible gift recipient (DGR)? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in early 20XX The deceased has bequeathed their securities to a charitable foundation. The charitable foundation is endorsed as a Deductible Gift Recipient.

Relevant legislative provisions: Income Tax Assessment Act 1997 – Section 30-15 | Income Tax Assessment Act 1997 – Section 104-215 | Income Tax Assessment Act 1997 – Section 118-60 | Income Tax Assessment Act 1997 – Section 995-1

Reasons for decision: Summary: When a person dies, any capital gain or loss made by them in respect of a capital gains tax (CGT) asset they owned just before dying is disregarded, unless CGT event K3 applies (sections 128-10 and 104-215 of the ITAA 1997). CGT event K3 in section 104-215 of the ITAA 1997 happens if a CGT asset owned by a deceased person just before they die passes to a beneficiary in their estate that, when the asset passes, is an exempt entity. Under subsection 104-215(3) of the ITAA 1997, CGT event K3 is taken to happen just before the deceased's death. An exempt entity is one whose ordinary and statutory income is exempt from income tax because of Division 50 of the ITAA 1997 (subsection 995-1(1) of the ITAA 1997). Therefore, CGT event K3 will happen in this case when the deceased’s property passes from the deceased estate to the beneficiary, who is an exempt entity. However, under subsection 118-60(1) of the ITAA 1997, a capital gain or loss made from a testamentary gift of property is disregarded if the gift would have been deductible under section 30-15 of the ITAA 1997 had it not been a testamentary gift. Subsection 30-15(1) of the ITAA 1997 provides that entities can deduct a gift in the situations set out in the table in section 30-15. The table sets out who the recipient of the gift can be, the type of gift that can be made, how much can be deducted and any special conditions that apply. Item 1 of the table sets out one of the situations in which a gift can be deducted. Under that item a gift of property must: ● be made to a DGR that is in Australia ● satisfy any gift conditions affecting the type of deductible gifts the recipient can receive, and ● be property that is covered by one of the listed gift types. The gift types include property valued by the Commissioner at more than $5,000. Therefore, as the beneficiary is a DGR in Australia, the deceased would have been entitled to a deduction under section 30-15 of the ITAA 1997 for the gift had it been made during their lifetime. If the only reason a gain or loss is not disregarded under subsection 118-60(1) of the ITAA 1997 is because the property has not been valued by the Commissioner at more than $5,000, then subsection 118-60(1A) of the ITAA 1997 states that, for the purposes of subsection 118-60(1) of the ITAA 1997, the property is taken to have been so valued. Accordingly, any capital gains or losses made from CGT event K3 happening are disregarded under subsection 118-60(1) of the ITAA 1997 when the property passes to the DGR beneficiary.