Taxation of deceased estates and the double death conundrum – has the Commissioner offered a way forward?

Generally, a capital gain or loss arising from the death of an Australian resident owner of a capital gains tax (CGT) asset is disregarded under Division 128 of the Income Tax Assessment Act 1997 (Cth). Instead, the capital gain or loss is deferred (or ‘rolled-over’) until a subsequent disposal of the property by the LPR or beneficiary, with the LPR or beneficiary being deemed to have acquired the asset as at the deceased’s date of death at a cost base determined in accordance with the tax legislation.

Significantly, Division 128 only applies in respect of assets owned by the deceased ‘just before’ they died. This gives rise to difficulties in the context of a ‘double death’ scenario, where the beneficiary of a deceased estate dies before the CGT asset passes to them. In this circumstance, Division 128 may not apply where CGT assets pass from a deceased estate to the estate of a beneficiary and then to the beneficiaries of this second deceased estate.

A new private ruling issued by the Commissioner on the CGT implications arising from a double death situation reveals that the Commissioner may now be inclined towards overcoming the inadvertent tax consequences arising from a double death scenario through the private ruling process. In the vast majority of cases, overcoming these consequences will be in the taxpayer’s favour; however, in some cases, it may not be. Given this, and in the absence of binding authority on the matter, the appropriate strategy will turn on the particular facts and circumstances and the risk profile of the parties involved.

In view of the private ruling and the Commissioner’s objective of promoting consistency of treatment for all taxpayers, taxpayers in a double death situation should consider applying for a private ruling to obtain clarity on the operation of Division 128 to their circumstances. Where appropriate to the taxpayer’s circumstances, it may be that, through the process, the double death conundrum may be successfully navigated.

Please click on the following link to find out more about this recent development and what this could mean for you: click here.

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‍This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.