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1 Will the capital gain made by Person A on the disposal of their share in the Property be disregarded pursuant to paragraph 104-10(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 Yes. This ruling applies for the following periods: Income year ended 30 June 20XX Income year ending 30 June 20XX Income year ending 30 June 20XX

Person X purchased the Property before 20 September 1985. Person X passed away in 19XX. Their last Will and Testament was dated in 19XX (the Will). Pursuant to a codicil made by Person X in 1981, their child Person B was appointed Executor and Trustee of Person X's estate. Pursuant to clause 3(b) of the Will, Person X bequeathed the Property to Person B (as Trustee) to hold it on trust for Person X's partner during their lifetime. Pursuant to clause 3(g) of the Will, the residue of Person X's estate was to be paid to their children Person B and Persons A in equal shares as tenants in common. The Property was transferred to Person B in their capacity as Executor in 1984, in accordance with clause 3(b) of the Will. Following the death of Person X's partner, the Property was transferred in 1998 by Person B (as Executor and Trustee of the estate) to themself and Persons A in equal shares as tenants in common, in accordance with clause 3(g) of the Will. Since Person X's death, the Property has not been subject to any capital improvements or additions taken to be a separate CGT asset under section 108-70 of the ITAA 1997.

Part of the property was sold by Person B and Persons A during the 20XX income year. As at the date of this ruling, the remaining part of the property is on the market.

Income Tax Assessment Act 1936 former subsection 160ZZS(1) Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 subsection 104-10(1) Income Tax Assessment Act 1997 paragraph 104-10(5)(a) Income Tax Assessment Act 1997 section 108-5 Income Tax Assessment Act 1997 section 108-70 Income Tax Assessment Act 1997 section 128-15 Income Tax Assessment Act 1997 subsection 128-15(2) Income Tax Assessment Act 1997 paragraph 128-20(1)(a) Income Tax Assessment Act 1997 Subdivision 149-B

All subsequent legislative references are to the ITAA 1997, unless otherwise indicated. Summary Any capital gain made on the disposal of Persons A's share in the Property is disregarded under paragraph 104-10(5)(a) because they are taken to have acquired their share at the date of Person X's death (before 20 September 1985) in accordance with subsection 128-15(2). Detailed reasoning You make a capital gain or a capital loss if a CGT event happens to a CGT asset. Section 108-5 defines a CGT asset as any kind of property, or a legal or equitable right that is not property. An interest in property is a CGT asset for the purpose of section 108-5. Subsection 104-10(1) provides that CGT event A1 happens if you dispose of a CGT asset. However, any capital gain or capital loss you make on disposal of a CGT asset acquired prior to 20 September 1985 is disregarded pursuant to paragraph 104-10(5)(a). Section 128-15 sets out what happens if a CGT asset owned by a deceased person immediately before their death devolves to their legal personal representative or passes to a beneficiary of the deceased estate.

For these purposes, paragraph 128-20(1)(a) provides that a CGT asset 'passes' to a beneficiary in your estate if the beneficiary becomes the owner of the asset under your will. Relevantly, subsection 128-15(2) provides that the legal personal representative or beneficiary is taken to have acquired the asset on the date of the deceased's death.

A remainder beneficiary under a will whose right to the assets is not subject to any contingency other than the death of the life beneficiary has a vested interest in the bequeathed assets but does not acquire possession of those assets until the death of the life beneficiary. A beneficiary who obtains a remainder interest in assets of a deceased estate under a will is also treated as acquiring those assets at the date of death, not at the date of death of the life tenant. Taxation Determination TD 93/37, which explained this treatment, was withdrawn on 7 April 2010 on the basis that the CGT treatment of life tenants and remaindermen is comprehensively dealt with in Taxation Ruling TR 2006/14, including this issue. Paragraph 126 of TR 2006/14 confirms that the remainder beneficiaries are taken under subsection 128-15(2) to have acquired estate assets at the date the deceased died. Where there has been a change in the majority underlying interests in a CGT asset last acquired by a non-public entity before 20 September 1985, the CGT asset ceases to be a pre-CGT asset and is taken to have been acquired at the time of the change (pursuant to former subsection 160ZZS(1) of the

Income Tax Assessment Act 1936 or Subdivision 149-B). Application to your circumstances Persons A's interest in the Property is a CGT asset under section 108-5. That interest 'passed' to Persons A as a remainder beneficiary (in Person X's estate) under the Will and was not subject to any contingency other than the death of Person X's partner (the life beneficiary). Having acquired a remainder interest in the Property (an asset of Person X's deceased estate) under a will, Persons A is taken to have acquired that CGT asset at the date of Person X's death pursuant to subsection 128-15(2), i.e. in 1983. Based on the facts provided for the purposes of this ruling, there has been no change in the majority underlying interests in the CGT asset since Persons A is taken to have acquired the asset, nor is a separate asset taken to have been acquired pursuant to section 108-70. Therefore, any capital gain or capital loss realised Person A under section 104-10 upon the disposal of their interest in the Property is disregarded under paragraph 104-10(5)(a) on the basis the disposed asset was acquired by them prior to 20 September 1985.