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  • Cost base of inherited assets

    The cost base of an inherited asset may be based on its value when the deceased acquired it or when they died, depending on the circumstances.

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    Asset acquired by deceased before 20 September 1985

    If the deceased acquired the asset before 20 September 1985, it was a pre-CGT asset while they owned it. The first element of your cost base – the acquisition cost – is the market value of the asset on the day the deceased died.

    If the deceased made a major improvement to the asset on or after 20 September 1985, the improvement is not treated as a separate asset. You are taken to have acquired a single asset.

    The cost base of this single asset is the total of:

    • the cost base of the major improvement on the day the person died
    • the market value of the pre-CGT asset, excluding the improvement, on the day the deceased died.

    Asset acquired by deceased from 20 September 1985

    If the deceased acquired the asset on or after 20 September 1985, the first element of your cost base – the acquisition cost – is generally the deceased’s cost base for the asset on the day they died.

    However, the first element of your cost base is the market value of the asset on the day the deceased died if the asset:

    • is a property that passed to you after 20 August 1996 (but not as a joint tenant), and just before the deceased died it was their main residence and was not being used to produce income
    • passed to you as the trustee of a special disability trust.

    Expenditure incurred by a legal personal representative

    As a beneficiary, you can include in your cost base (and reduced cost base) any expenditure a legal personal representative would have included in their cost base if they had sold the asset instead of distributing it to you.

    You include the expenditure on the date they incurred it.

    For example, if an executor incurs costs to confirm the validity of the deceased’s will, these costs form part of the cost base of the estate’s assets.

    Example: transfer of an asset from executor to beneficiary

    Maria died on 13 October 2018 leaving 2 assets:

    • a parcel of 2,000 shares
    • a vacant block of land.

    The executor of the estate:

    • disregarded any capital gain or loss on the transfer of the assets
    • sold the shares to pay Maria's outstanding debts
    • transferred the land to Maria's beneficiary, Antonio, and paid the conveyancing fee of $5,000 upon payment of all debts and tax.

    The shares were not transferred to a beneficiary. Therefore, the executor must include any capital gain or loss on this disposal in the tax return for Maria's deceased estate.

    The land was transferred to a beneficiary. Any capital gain or loss on this transfer is disregarded.

    The first element of Antonio's cost base is Maria's cost base on the date of her death. Antonio can include the $5,000 the executor spent on the conveyancing in his cost base.

    End of example

    Indexing the cost base of an inherited asset

    If the deceased died before 21 September 1999, you have the option of indexing the cost base when you dispose of the asset. Alternatively, you can claim the CGT discount. Usually the discount will give you a better result.

    With indexation, you calculate your capital gain by using the first element of the asset's cost base indexed for inflation up until 21 September 1999. You do not apply the discount.

    If the deceased died on or after 21 September 1999, you cannot use indexation. If the deceased's cost base includes indexation, you must recalculate the first element of your cost base to exclude it.

    Last modified: 04 Aug 2021QC 66053