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If you become the beneficiary (or legal personal representative) of a deceased estate on or before 11.45 am on 21 September 1999, there are 2 ways of calculating your capital gain. You can use either the indexation method or the discount method, whichever gives you the better result.
As a general rule, elements of the estate's cost base of an asset can be indexed if you own the asset for at least 12 months before disposing of it. If you receive an asset from an estate, the 12-month period is calculated from the time the deceased acquired the asset, not from the date of their death.
If you acquired the asset on or before 11.45 am on 21 September 1999 but dispose of the asset after that time, you may choose to either index the cost base or claim the CGT discount.
However, the CGT discount is only available if you are an individual, a trust or a complying superannuation entity.
For the CGT discount to apply, you must have acquired the asset at least 12 months before disposing of it. For the purposes of this 12-month ownership test, you are taken to have acquired the asset at one of the following times:
- for pre-CGT assets, the date the deceased died
- for post-CGT assets, the date the deceased acquired it.
Transfer of an asset from the executor to a beneficiary
Maria died on 13 October 2000 leaving 2 assets: a parcel of 2,000 shares in ABC Ltd and a vacant block of land. Giovanni was appointed executor of the estate (the legal personal representative).
When the assets are transferred to Giovanni, any capital gain or capital loss is disregarded. Giovanni disposes of (sells) the shares to pay Maria's outstanding debts. As the shares are not transferred to a beneficiary, any capital gain or capital loss on this disposal must be included on the tax return for Maria's deceased estate.
When all debts and tax have been paid, Giovanni transfers the land to Maria's beneficiary, Antonio, and pays the conveyancing fee of $5,000. As the land is transferred to a beneficiary, any capital gain or capital loss is disregarded. The first element of Antonio's cost base is taken as Maria's cost base on the date of her death. Antonio is also entitled to include in his cost base the $5,000 Giovanni spent on the conveyancing.
Indexation and CGT discount
Leonard acquired a property on 14 November 1998 for $26,000. He died on 6 August 1999 and left the property to Gladys. She sold the property on 6 July 2001 for $40,000. The property was not the main residence of either Leonard or Gladys.
Although Gladys acquired the property on 6 August 1999, for the purpose of determining whether she had owned the property for at least 12 months, she was taken to have acquired it on 14 November 1998 (the day Leonard acquired it).
At the time of disposal, Gladys is taken to have owned the property for more than 12 months. As she acquired it before 11.45 am on 21 September 1999 and disposed of it after that date, Gladys could choose to index the cost base. However, if the discount method gave her a better result, she could choose to claim the CGT discount.
If Gladys chose the discount method she would have to exclude from the first element of her cost base the amount that represented indexation that had accrued to Leonard up until the time he died.
Last modified: 06 Oct 2009QC 27417