Private ruling: Capital gains tax - deceased estate - shares
Published: July 2011
Ruling period: Year ending 30 June 2010
Date scheme commenced: 2009

Ruling: Q1: Do you have the option of using the day the shares were disposed of or transferred to the beneficiaries, as the final CGT event date for all or some of the parcels of shares and initial CGT date for beneficiaries? | A1: No. | Q2: Do you have the option of passing the deceased's initial CGT acquisition dates on to the beneficiaries? | A2: No

Relevant facts and circumstances: The deceased passed away in 200X. The estate is fully administered and you are executor of the estate. The principal beneficiaries of the deceased estate are the deceased's children who are entitled to an equal share of the remaining estate. These beneficiaries have received part of their inheritance already in the form of money or shares. The grandchildren are also entitled to a fixed money amount of the estate, which they have already received. None of the beneficiaries are foreign residents. The deceased had pre and post CGT shares at the time of their death. In 2010 all the shares were sold on the market or transferred to beneficiaries who opted for them in lieu of proceeds of sale. The remaining assets will be distributed once tax affairs are worked out in relation to the deceased's shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20, | Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Subsection 104-10(5), | Income Tax Assessment Act 1997 Section 106-50, | Income Tax Assessment Act 1997 Section 108-5, | Income Tax Assessment Act 1997 Section 115-15, | Income Tax Assessment Act 1997 Section 115-25, | Income Tax Assessment Act 1997 Subsection 115-30(1), | Income Tax Assessment Act 1997 Section 128-20, | Income Tax Assessment Act 1997 Subsection 128-15(2), | Income Tax Assessment Act 1997 Subsection 128-15(3) and | Income Tax Assessment Act 1997 Subsection 128-15(4).

Reasons for decision: Summary: You must use 2009 as the CGT date the parcels of shares transferred from the deceased to the beneficiaries. | Detailed Reasoning - Detailed reasoning: If an individual acquires an asset owned by a deceased person as their legal personal representative or beneficiary, they are taken to have acquired the asset on the day the person died. When a deceased estate has been ascertained, fully administered and a resident beneficiary of a trust estate is not under a legal disability and is absolutely entitled to a share of an asset, the sale of the asset in a trust is assessable income to the beneficiary, not the trust, if: · the assets are easily divisible, at least to the extent to which a person would reasonably be expected to be indifferent to the replacement of any one asset with another · equity would permit the beneficiary to have their interest in all those assets satisfied by the distribution or allocation in their favour of a specific number of them · there is a clear understanding on the part of all relevant parties that the beneficiary is entitled, to the exclusion of the other beneficiaries to a specific number of the trust's assets. In your case the deceased in 200X. This is the date you as the legal representative for the estate acquired the shares. The beneficiaries became absolutely entitled to the shares of the estate once it had been fully administered. This is because the deceased's will entitles the beneficiaries' to a fifth of the estate, meaning: · all shares are easily divisible, · all beneficiaries have an equal share in all assets including the shares · a fifth entitlement is a specific number. The date the beneficiaries acquired the shares is the date the deceased died, in 200X. Therefore any capital gains or losses realised on the sale of shares that were sold after this date will be assessable to the beneficiaries (not the trust estate), in the proportion of their interest. | Summary: You do not have the option of passing the deceased's initial CGT acquisition dates onto the beneficiaries. | Detailed Reasoning - Detailed reasoning: Any capital gain or capital loss a legal personal representative makes when an asset passes to a beneficiary is disregarded. A capital gains tax liability arises when the asset (i.e. shares) are subsequently disposed of (i.e. when sold). There is no capital gains tax liability when they are transferred into the beneficiaries' name. If the deceased person acquired their asset before 20 September 1985 , the first element of the legal personal representative's or beneficiaries' cost base and reduced cost base (that is, the amount taken to have been paid for the asset) is the market value of the asset on the day the person died. A 50% CGT discount may be applied to a capital gain from an event that is acquired or held for at least 12 months before being disposed of. For the capital gains discount purpose of pre-CGT assets the 12 month period begins at the time the deceased person dies. If a deceased person acquired their asset on or after 20 September 1985 , the first element of the legal personal representatives or beneficiary's cost base and reduced cost base is taken to be the deceased persons cost base and reduced cost base of the asset on the day the person died. In yours and the beneficiaries' case the initial CGT date will be in 2009. A CGT event will occur when the shares are disposed of. The cost base will be the market value at this date for shares purchased before 20 September 1985. Provided these shares were held for at least 12 months and sold after 19 February 2010 beneficiaries are entitled to a 50% discount on the capital gain. The cost base of shares purchased after 20 September 1985 is the cost at the time the deceased purchased the shares. You do not have the option of passing on the deceased's initial CGT acquisition date onto the beneficiaries for the reasons listed above. Any capital gains from pre and post CGT shares will need to be included in the assessable income of the beneficiaries, when disposed of. | Detailed Reasoning - Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20, Income Tax Assessment Act 1997 Section 104-10, Income Tax Assessment Act 1997 Subsection 104-10(5), Income Tax Assessment Act 1997 Section 106-50, Income Tax Assessment Act 1997 Section 108-5, Income Tax Assessment Act 1997 Section 115-15, Income Tax Assessment Act 1997 Section 115-25, Income Tax Assessment Act 1997 Subsection 115-30(1), Income Tax Assessment Act 1997 Section 128-20, Income Tax Assessment Act 1997 Subsection 128-15(2), Income Tax Assessment Act 1997 Subsection 128-15(3) and Income Tax Assessment Act 1997 Subsection 128-15(4).

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