Private ruling: CGT and deceased estate
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Question and answer | Is there a CGT liability on the sale, by a legal personal representative, of a pre-CGT property bequeathed by a deceased estate to deductible gift recipients? | No.

Relevant facts and circumstances: The testator purchased the land before 20 September 1985 The testator died after 20 September 1985. A life tenant was permitted under to occupy the dwelling until their death. The dwelling is set on more than 2 hectares of land. The land was sold by the trust managing the dwelling. A capital gain was made. The assets of the deceased have not yet been passed to the beneficiaries. The beneficiaries are Not For Profit organisations that are endorsed on the Australian Business Register as Income Tax Exempt charities. The beneficiaries are presently entitled to the assets of the estate which are currently being held in a solicitor's account.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-215 | Section 118-115 | Section 118-120 | Section 118-200

Reasons for decision: Detailed Reasoning - Asset passing to tax-advantaged entity: CGT event K3: You have sold a dwelling, the proceeds of which are to be passed under a will to a tax-advantaged entity. Under section 104-215(1) of the Income Tax Assessment Act 1997 (ITAA 1997), CGT event K3 happens if a taxpayer dies and a CGT asset the taxpayer owned just before dying passes to a beneficiary in the taxpayer's estate who (when the asset passes) is a tax-advantaged entity, being: (a) an income tax exempt entity (b) the trustee of a complying superannuation entity, or (c) a foreign resident. The beneficiaries of the estate are income tax exempt charities. The passing of the asset to the beneficiaries will therefore trigger CGT event K3. Note, the time for determining the status of the beneficiary (ie whether or not it is a tax-advantaged entity) is the time when the asset passes to the beneficiary (section 104-215(1) of the ITAA1997) and not the date of death of the benefactor. Under section 104-215(5) of the ITAA 1997, a capital gain or capital loss made as a result of CGT event K3 is disregarded if the taxpayer acquired the asset before 20 September 1985. The property bequeathed was initially purchased in 1957, as this precedes the 20 September 1985, the capital gain passing to the tax-advantaged entity is disregarded. | Detailed Reasoning - Disposal of a CGT asset by the trust: CGT event A1: Where the dwelling was, immediately before death, the deceased's sole or principal residence and was not used for the purpose of gaining or producing assessable income, the first element of the dwelling's cost base is the market value at the date of death. CGT event A1 happens when a CGT asset is disposed of. You dispose of a CGT asset when a disposal contract is entered into. Capital gain or loss is disregarded if the asset is acquired before 20 September 1985.The estate acquires the asset on the date of death which was after 20 September 1985. Therefore the capital gain is not disregarded in full. | Detailed Reasoning - Is the trust assessable?: Australian resident beneficiaries who are presently entitled and not under a legal disability, will be personally liable to pay tax on the capital gain. The beneficiaries are presently entitled to the assets of the estate as they are currently held in a banking account awaiting distribution by the estate. Legal disability is a disability that prevents a person from engaging in, or restricts compliance with, legal activity. A legal disability can also result from age. The beneficiaries are not under a legal disability, so they are not obstructed from their present entitlement. As the beneficiaries are presently entitled and not under a legal disability, they will be liable to pay tax on the capital gain. Therefore the trust is not assessable.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.