Private ruling: Transfer of a property to a beneficiary of a deceased estate
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Will you make a capital gain or capital loss in relation to the property during the income year? | A1: Yes.

Relevant facts and circumstances: You are a deceased estate. Your executor purchased a property on your behalf a number of years ago. This property was held by the executor in trust on your behalf and you have forwarded a copy of the trust deed. The property has now been transferred to the end beneficiary and you now propose to finalise the estate. The administration of the estate was completed prior to the transfer of the property. The only possible liability which has not yet been paid is any CGT which might result from the transfer of the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 100-20(1) | Income Tax Assessment Act 1997 Section 104-75

Reasons for decision: Summary: You make a capital gain or capital loss if and only if a CGT event happens (subsection 100-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997)). CGT event E5 under section 104-75 of the ITAA 1997 happens if a beneficiary becomes absolutely entitled to a CGT asset of a trust (except a unit trust or a trust to which Division 128 of the ITAA 1997 applies) as against the trustee (disregarding any legal disability the beneficiary is under). Draft Taxation Ruling TR 2004/D25 explains the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a CGT asset of the trust as against its trustee. In your case, as the property was not originally owned by the deceased, the Division 128 of the ITAA 1997 exception will not apply in your case, and CGT event E5 happened when the end beneficiary became absolutely entitled to the property. In this case, the end beneficiary would have become absolutely entitled to the property when the administration of the estate was completed during the income year. The time of the CGT event is when the beneficiary became absolutely entitled to the property during the income year. You will make a capital gain if the market value of the property (at the time of the event) is more than its cost base. You will make a capital loss if that market value is less than the reduced cost base of the property. In this case, no CGT event will happen at the time of the actual transfer of the property to the beneficiary, the CGT event is when the beneficiary became absolutely entitled earlier in the financial year.

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. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.