Private ruling: Capital gains tax - deceased estates - acquisition date
Published: June 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the date of death the acquisition date for the 25% share in the second group of properties you acquired as a result of the execution of the deceased's estate? | A1: Yes | Q2: Is the date of transfer the acquisition date for the further 25% share in the second group of properties you acquired as a result of the subsequent agreement between the beneficiaries? | A2: Yes

Relevant facts and circumstances: You are two of the beneficiaries of the estate of a person who died prior to 20 September 1985. The other two beneficiaries were the executors of the will. There were a number blocks of land that formed part of the estate. This land was not transferred to the beneficiaries until after 20 September 1985 as a result of caveats and legal action. None of the blocks of land were the deceased's main residence. At the time of transfer, the beneficiaries had not decided who would inherit what land so each of the beneficiaries received an equal share in all of the blocks of land as tenants in common. Subsequent to the initial transfer, it was agreed that the land would be grouped and divided among the beneficiaries. You were to acquire 100% share in a number of blocks of land (the second group of properties) as joint tenants. Your shares in the remaining blocks of land (the first group properties) were to be transferred to the other beneficiaries. Your solicitor made an error when completing the transfer documents that resulted in the first group properties that were meant to be transferred to the other beneficiaries being registered in your name and the second group of properties you were meant to acquire being registered in the name of the other beneficiaries. The solicitor prepared the required documents to rectify the error and have the second group of properties transferred back to you. You now intend to dispose of the properties.

Relevant legislative provisions: Income Tax Assessment 1997 Section 104-10 | Income Tax Assessment 1997 Paragraph 104-10(5)(a) | Income Tax Assessment 1997 Section 108-7 | Income Tax Assessment 1997 Section 109-5 | Income Tax Assessment 1997 Division 128 | Income Tax Assessment 1997 Subsection 128-15(2)

Reasons for decision: Detailed Reasoning - Transmission by death: Under Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) when a person dies a capital gain or capital loss from a capital gains tax (CGT) event that results from a CGT asset the person owned just before dying is disregarded. In accordance with subsection 128-15(2) of the ITAA 1997, a legal personal representative (LPR) or a beneficiary is taken to have acquired the asset on the day the deceased died. Any subsequent disposal by the LPR or beneficiary is a CGT event which will result in a capital gain or loss. A capital gain on the disposal of an asset can be disregarded under paragraph 104-10(5)(a) of the ITAA 1997 if it was acquired prior to 20 September 1985. As a result of the transmission by death, you each acquired a 25% share in all of the deceased's properties. Although there was a delay in granting probate, the interest in these properties is taken to have been acquired on the date of the deceased's death. As these interests where acquired prior to 20 September 1985, any capital gain made on the subsequent disposal of these interests will be disregarded. | Detailed Reasoning - Subsequent agreement between beneficiaries: The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). A taxpayer disposes of a CGT asset if a change of ownership occurs from that taxpayer to another entity. This change can be the result of some act or event, or by operation of law. Subsequent to the execution of the will, you agreed with the other beneficiaries to divide the properties between you. It was decided that the second group of properties would be transferred to you as joint tenants, and the first group of properties would be transferred to the other beneficiaries. Had the transfer of the land been executed in accordance with the above agreement, CGT event A1 would have occurred. You each would have disposed of your 25% share in the first group of companies. However, as the interest in these properties was acquired prior to 20 September 1985, any capital gain will be disregarded under paragraph 104-10(5)(a) of the ITAA 1997. Section 108-7 of the ITAA 1997 provides that individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common. Furthermore, Taxation Determination TD 2000/31 provides that if you own an interest in a CGT asset and you subsequently acquire another interest in that asset, the interests remain separate CGT assets for CGT purposes. As a result of the agreement between you and the other beneficiaries, you would have each acquired an additional 25% interest in the second group of properties. The new 25% interest would be considered a separate CGT asset to the 25% share you initially acquired as a result of the transmission by death. Section 109-5 of the ITAA 1997 provides that you acquire an asset when the disposal contract is entered into or, if there is no contract, when the entity stops being the asset's owner. You have not provided any evidence of a contract that was entered into and the transfer was to be executed by way of instructions to your solicitor. Accordingly, you would have acquired the new 25% share in the second group of properties on the date of transfer. Your solicitor made an error when completing the transfer as per your agreement which resulted in the wrong land being registered in your names. We do not consider that this error resulted in a change in the beneficial ownership of the properties that differed to your agreement. Accordingly, the error in registration will not give rise to a CGT event. | Detailed Reasoning - CGT consequences of selling the properties: You have each acquired a new 25% interest in the properties on the date of transfer. As the date of transfer was after 20 September 1985, you will not be able to disregard any capital gains made on the subsequent disposal of these interests under paragraph 104-10(5)(a) of the ITAA 1997. The original 25% interest that you each held in this property as a result of the execution of the deceased's estate, remains a pre-CGT asset and any capital gains made on the subsequent disposal of these interests can be disregarded under paragraph 104-10(5)(a) of the ITAA 1997.

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