Mr D Passed away on XX December 2018. His estate assets include a share portfolio returning dividends,
interest on bank accounts. His will declared his only beneficiary to be his surviving daughter (now our client).
Probate has been granted as of May 2019 with no one laying any claim to the estate.
Today’s questions are:
Would Mr D’s daughter be treated as being presently entitled to all income of the estate from the date of
death, or from the date of probate?
In addition to this, can you confirm that the cost base of the share portfolio of Mr D (being shares
purchased post-CGT) would be transferred to Mr D’s daughter at that cost base? Would that begin a new
12-month period for the CGT 50% discount?
Lastly, if Mr D’s daughter did not have any carried forward capital losses, and the shares were acquired post
CGT, is there any tax benefit selling them in the name of the estate for capital gains purposes (rather than
transferring them to Mr D’s daughter)? Or is this a non-issue since my new client may be presently entitled
to the capital gains income of the estate?
1. The Commissioner in the Taxation Ruling IT 2622 provides his view on the present entitlement during
the stages of administration of deceased estates.
Generally, the executor of a deceased estate is assessed on the net income of a deceased estate in
relation to each financial year after the death of the deceased until the administration of the estate is
finalised. The income derived by the estate during the administration of the estate will be income to
which no beneficiary is entitled, thus the income will be assessed to the executor.
However, if during the administration of the estate, the executor makes a distribution of income under
his discretion, the beneficiary is taken to be presently entitled to the income to the extent of the
amount actually paid to them or applied on their behalf.
The Commissioner also takes a view that the administration of the estate will be considered complete
where the executor has paid or provided for all debts and the net income of the estate is available for
distribution. The ruling provides that “The administration of the estate does not have to reach the
stage where the estate is wound up for beneficiaries to enjoy present entitlement to the income of the
estate. Once the executor has provided for all debts incurred by the deceased before his or her death
and for debts incurred in administering the estate (e.g. funeral expenses) and provided for
distributions of specific assets or legacies, it will be possible to ascertain the residue with certainty,
even though the executor may not have actually made all the transfers necessary to satisfy these
demands on the estate. Consequently, the beneficiary will be presently entitled to the income of the
estate and assessed on that income under s97 (or s98).
Please refer to IT 2622 for your reference.
2. Where the shares were post-CGT assets of the deceased, the beneficiary would acquire the shares
for a cost base equal to the cost base for the deceased at the date of death. Basically the beneficiary
would ‘inherit’ the deceased’s cost base of the shares.
For the purpose of the 12-month holding period to access the CGT discount, the beneficiary would be
taken to acquire the shares when the deceased acquired them. Refer to Item 3 in the table in s115-30(1).
3. If the executor of the deceased estate sells the shares, the deceased estate would make a capital
gain. The capital gain would be taxed to the beneficiaries if the capital gain forms part of the trust income and the beneficiaries are presently entitled to a share of the trust income. However, the
executor would be taxed on the capital gain if the administration of the deceased estate is not
complete and no beneficiaries are presently entitled to the income of the deceased estate.