Private ruling: Capital gains tax
Date of advice: 9 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you taken to have acquired the property on the date of death of the deceased and therefore hold the property as a pre-CGT asset? | A1: Yes.

Relevant facts and circumstances: The deceased passed away before 20 September 1985. You were named as a beneficiary under their will. The will provided that you were to receive property from the deceased estate upon reaching a particular age. The property was subsequently held on trust for you and rented out until you reached that age. You reached that age after 20 September 1985 and the property was subsequently transferred to you. Since then you continued to rent the property to unrelated tenants. You now wish to sell the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 128-15 | Income Tax Assessment Act 1997 - Section 128-20

Reasons for decision: Summary: Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with the effects of death, and sets out what happens when a CGT asset that a deceased person owned devolves to their legal personal representative or passes to a beneficiary of their estate. Subsection 128-15 of the ITAA 1997 states that if an asset the deceased owned before they died passes to a beneficiary of the deceased estate, or the asset devolves to the deceased's legal personal representative, the legal personal representative or beneficiary is taken to have acquired the asset on the day the deceased died. Consequently, where a deceased person passes away before 20 September 1985, their beneficiaries are taken to have acquired their shares in the deceased's assets prior to 20 September 1985 and therefore hold the assets as pre-CGT assets. This is the case even if the assets do not pass to the beneficiaries until after 20 September 1985. A CGT asset passes to a beneficiary if the beneficiary becomes the owner in one of the ways set out in section 128-20 of the ITAA 1997, which includes under the will of the deceased. This section notes that it does not matter whether the asset is transmitted directly to the beneficiary or is transferred to the beneficiary by their legal personal representative. For the purposes of applying Division 128 of the ITAA 1997, trustees of testamentary trusts are treated in the same way as legal personal representatives (Practice Statement Law Administration PS LA 2003/12). An asset can also pass to a beneficiary within the meaning of section 128-20 of the ITAA 1997 prior to legal transfer if the beneficiary becomes absolutely entitled to the asset as against the trustee (TD 2004/3 Income tax: capital gains: does an asset 'pass' to a beneficiary of a deceased estate under section 128-20 of the Income Tax Assessment Act 1997 if the beneficiary becomes absolutely entitled to the asset as against the trustee of the estate? ). The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. | Detailed Reasoning - Application to your circumstances: In your case, the deceased acquired property before they passed away. The property was then held on trust for you until you reached a particular age. Upon attaining this age you became absolutely entitled to the property because it would have been possible for you to call for the asset to be transferred to you from this date onwards (as you did shortly after). When you became absolutely entitled to the property, it 'passed' to you in accordance with section 128-20 of the ITAA 1997. Accordingly, you are taken to have acquired the asset on the day the deceased passed away. You therefore hold the property as a pre-CGT asset.