Private ruling: Legal and beneficial ownership
Date of advice: 23 August 2023
Published: 9 October 2023
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will a capital gains tax (CGT) event occur when the shares, that were previously transferred from the Estate into the individual's joint shareholding account, are transferred into the names of the individuals as executors of the Estate? | A1: No. Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. It states that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or operation of the law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. Accordingly, it is the beneficial ownership of the asset that is of importance. In this case, shares that were held in the name of the deceased were transferred to an individual joint shareholding account. The executors became aware of this when the tax agent was finalising the income tax return for the Estate. As such, it is evident that the transfer of the shares did not occur in accordance with the Will. We consider that the executors have continued to be the beneficial owners of the shares. As there will be no change in the beneficial ownership of the shares when they are transferred into the names of the individuals as executors of the Estate, no CGT event will occur.

Relevant facts and circumstances: The deceased passed away on DD MM 20YY. The deceased's Will named their children Person A and Person B as executors and beneficiaries of the Estate and their children Person C and Person D as beneficiaries of the Estate. Most of the deceased's assets were direct share holdings. Some of the shares were sold to assist in paying beneficiaries including the deceased's grandchildren and the executor's stepsister. The executors had the option to sell the shares within the Estate and distribute the funds or to transfer the shares directly to themselves individually. Some of the shares were transferred to Person A and some were transferred to Person C. Both transfers were directly from the Estate. Person B and Person D's initial intentions were for their shares to be sold within the Estate, however Person B received financial advice, and both elected to proceed with a direct transfer from the Estate. Half of the remaining shares were to be divided between Person B and Person C. Some of these shares were sold within the Estate. The executors decided that it would be best to have their remaining shares listed with a stockbroker for them to be sold faster. On DD MM 20YY, the executors engaged with lawyers to administer the Estates affairs, however felt that that they were not receiving communications and guidance from them. The Executors then proceeded to seek instructions directly from a share trading platform on steps to administer the Estate's share portfolio. The executors then decided to open a new account for the Estate with the share trading platform. The executors were of the impression that it was not possible to open a trust account in the names of more than one executor. They contacted the share trading platform several times for assistance and were advised by representatives to open a joint account. Following the advice received from the share trading platform and the difficulties experienced with establishing a trading account for the estate, the executors proceeded in transferring the remaining shares into their joint names. In doing so, the executors believed that they were holding the shares in Trust for the Estate. Between DD MM 20YY and DD MM 20YY, a high value of shares had been incorrectly transferred from the Estate to the joint account. In MM 20YY, the executors tax agent was preparing the income tax return for the Estate for the 20YY income year and advised that there were no assets remaining in the estate as all the shares had been transferred from the shareholding account. The executors were then aware that they had transferred the shares to themselves as individuals instead of in the name of the executors of the Estate. The executors contacted the share trading platform and established an Estate trading account. The shares currently remain in the account in the joint names of the executors, whilst waiting for further advice regarding any CGT implications. The Estate account remains open, however does not contain holdings. The executors intend on transferring the shares back to the Estate to complete the sale of the shares within the Estate. The dividends from the shareholdings with the share trading platform that are in joint names are being directed to an Estate bank account and held there for the benefit of Person B and Person D.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10