Issue
Can a taxpayer who receives NRMA shares as beneficiary of a deceased estate disregard any capital gain or capital loss under section 121AS of the Income Tax Assessment Act 1936 (ITAA 1936) when their membership rights in NRMA are cancelled?
Decision
Yes, a taxpayer who receives NRMA shares as beneficiary of a deceased estate can disregard any capital gain or capital loss under section 121AS of the ITAA 1936 when their membership rights in NRMA are cancelled.
Facts
The taxpayer is a beneficiary of the deceased estate of a member of NRMA.
The deceased died after 25 February 1999 (the announcement date) but before the demutualisation of NRMA in June 2000.
The taxpayer, as beneficiary, was a member of NRMA upon demutualisation
As a result, the taxpayer was allocated shares in NRMA that the deceased would have been entitled to upon demutualisation.
Reasons for Decision
If a member of NRMA died after 25 February 1999, their legal personal representative (or a beneficiary appointed by them) was entitled to the shares that would have been allocated to the deceased. However, the legal personal representative (or a beneficiary appointed by them) who was allocated the shares must have agreed to become a member of NRMA at the time of demutualisation.
Membership rights to the NRMA shares were cancelled when demutualisation occurred. This happened in June 2000.
Item 1 in the table in section 121AS of the ITAA 1936 provides that upon the cancellation of membership rights in an Australian insurance company, a capital gain or capital loss is disregarded. At the time of the demutualisation, the taxpayer held membership rights in NRMA, and, as beneficiary of the deceased's estate, they were allocated shares that would have been allocated to the deceased. Therefore, the taxpayer can disregard any capital gain or capital loss that arose on the cancellation of the membership rights in NRMA.