Capital gain or capital loss on death is disregarded
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There is a general rule that CGT applies to any change of ownership of a CGT asset, unless the asset was acquired before 20 September 1985 (pre-CGT).
There is a special rule that allows any capital gain or capital loss made on a post-CGT asset to be disregarded if, when a person dies, an asset they owned passes:
- to their legal personal representative or to a beneficiary, or
- from their legal personal representative to a beneficiary.
Exceptions to this rule
A capital gain or capital loss is not disregarded if a post-CGT asset owned at the time of death passes from the deceased to a tax-advantaged entity or to a foreign resident. In these cases, a CGT event is taken to have happened to the asset just before the person died. The CGT event will result in:
- a capital gain if the market value of the asset on the day the person died was more than the cost base of the asset, or
- a capital loss if the market value was less than the asset’s reduced cost base.
These capital gains and losses should be taken into account in the deceased person’s ‘date of death return’ (the tax return for the period from the start of the income year to the date of the person’s death).
However, any capital gain or capital loss from a testamentary gift of property can be disregarded if:
- the gift is made under the Cultural Bequests Program, which applies to certain gifts of property (not land or buildings) to a library, museum or art gallery, or
- the gift is made to a deductible gift recipient and the gift would have been income tax deductible if it had not been a testamentary gift.
The condition that testamentary gifts of property must be valued at greater than $5,000 before the CGT exemption applies does not apply to gifts made on or after 1 July 2005.
A tax-advantaged entity is:
- a tax-exempt entity, for example, a church or charity, or
- the trustee of
- a complying superannuation fund
- a complying approved deposit fund, or
- a pooled superannuation trust.
Foreign resident beneficiary
If a foreign resident is a beneficiary of a deceased’s post CGT asset, any capital gain or capital loss is taken into account in preparing the deceased person’s date of death return if:
- the deceased was an Australian resident when they died, and
- the asset is not ‘taxable Australian property’ in the hands of the beneficiary.