Taxation Determination

TD 95/46

Income tax: capital gains: if a non-resident person bequeaths an asset, which is not a taxable Australian asset, to a resident beneficiary, does that status (i.e., not a taxable Australian asset) carry through to the beneficiary on the death of the non-resident?

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FOI status:

may be releasedFOI number: I 1014545

1. No. The phrase 'taxable Australian asset' in section 160T of the Income Tax Assessment Act 1936 (the Act) is only relevant from the perspective of a non-resident. However, from the resident's perspective, Part IIIA of the Act applies to the disposal of an asset, whether situated in Australia or elsewhere or not situated anywhere (subsection 160L(1)). The phrase 'taxable Australian asset' is not relevant to a resident.

2. The resident beneficiary is taken to have acquired the asset in accordance with subsection 160X(5). Part IIIA will apply to any later disposal of the asset by the beneficiary.

Example 1

Before 20 September 1985, Gunther, a non-resident, purchased 1,000 shares (representing 2% of the issued share capital) in ABC Ltd (an Australian public company) for $1,000. Gunther died on 21 March 1995, leaving the shares in ABC Ltd to an Australian resident beneficiary. At that time the market value of the shares was $16,000.

(i)

The shares when held by Gunther are not taxable Australian assets.

(ii)

Section 160X applies to the shares in the hands of the resident beneficiary.

(iii)

The date of acquisition and cost base of the shares are calculated in accordance with paragraph 160X(5)(a) so that:

the shares are deemed to have been acquired by the beneficiary on Gunther's date of death (21 March 1995); and

for a consideration equal to the market value of the shares as determined at Gunther's date of death, i.e., $16,000.

Example 2

Assume that the facts in Example 1 are unchanged, except that Gunther acquired the shares on 21 January 1990 for $5,000. Again, the shares held by Gunther are not taxable Australian assets, but section 160X applies to the shares in the hands of the resident beneficiary.The date of acquisition and cost base of the shares are calculated in accordance with paragraph 160X(5)(b) or subsection 160X(6)so that:

the shares are deemed to have been acquired by the beneficiary on Gunther's date of death (21 March 1995); and

for a consideration equal to the amount that would have been the cost base, indexed cost base or reduced cost base (depending on which is applicable on a later disposal by the beneficiary) to Gunther if he had disposed of the shares immediately before his death.

Commissioner of Taxation
30 August 1995

Previously issued as Draft TD 93/D291.

References

ATO references:
NO CGTDET97; NAT 95/6432-2

Related Rulings/Determinations:

TD 95/47

Subject References:
cost base
date of acquisition
date of death
deceased estates
taxable australian asset

Legislative References:
ITAA 160L(1)
ITAA 160T
ITAA 160X
ITAA 160X(5)(a)
ITAA 160X(5)(b)
ITAA 160X(6)