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Edited version of private ruling
Authorisation Number: 1011534992349
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
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Ruling
Subject: Capital gains tax (CGT) - Deceased estate - Inherited real property
1. Is any capital gain or capital loss you make from the sale of your interest in the property disregarded?
No.
2. Is the market value of your interest in the house and two hectares of adjacent land (including the land under the house) as at the date the deceased died used when working out the cost base of this part of the property?
No.
3. Is the market value of your interest in the remainder of the property as at the date the deceased's parent died used when working out the cost base of the remainder of the property?
Yes.
This ruling applies for the following period<s>:
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commences on:
1 July 1987
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The block of land in question comprises about four hectares. The land was originally granted to the deceased's other parent.
The deceased's other parent predeceased this parent prior to the introduction of CGT in September 1985. The deceased's parent inherited the house and land under this Will. It was the principal place of residence.
The deceased's parent passed away after September 1985. Under the Will they left a equal interest in the property to some of the children.
The first child to die left their interest in equal shares to the siblings that inherited from the deceased's parent.
The second child to die held the original interest in the block of land that they had inherited from the deceased's parent plus the share they had subsequently inherited. This interest is still held by their estate.
Last year a contract was signed for the sale of the property. The contract is subject to conditions relating to the purchaser obtaining development approval. The proposed settlement date has recently been extended for a month.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-120
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 118-200
Income Tax Assessment Act 1997 Section 118-205
Income Tax Assessment Act 1997 Section 128-15.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Question 1
Summary
Any capital gain or capital loss you make from the sale of your interest in the property is not disregarded.
Detailed reasoning
A capital gain or capital loss you make from the sale of a property that is less than two hectares in size is disregarded if the dwelling on it was the main residence of the deceased just before death (and it was not then being used for the purpose of earning assessable income) and:
· your ownership interest ends within two years of the date of the deceased's death
· the dwelling was the main residence of the spouse of the deceased from the deceased's death until your ownership of it ends, or
· the dwelling was the main residence of an individual who had a right to occupy it under the deceased's Will from the deceased's death until your ownership of it ends.
You are not entitled to disregard any capital gain or capital loss you make from the sale of the property because:
· it wasn't the deceased's main residence when they died
· it is greater than two hectares in size, and
· none of the three conditions mentioned above are met.
Question 2
Summary
The market value of your interest in the house and two hectares of adjacent land (including the land under the house) as at the date the deceased died cannot be used when working out the cost base of this part of the property.
Detailed reasoning
The capital gains provisions generally don't subject a deceased person to tax due to them dying. Instead, their liability to CGT is passed to their estate and then onto the beneficiary of their estate that inherits a particular asset that the deceased owned just before they died.
For most assets, the liability to CGT is passed on by the estate or beneficiary inheriting the cost base and reduced cost base of the asset as well as inheriting the asset.
However, for a property that was the deceased's main residence just before they died and was not then being used to produce assessable income, the estate or beneficiary inherits a cost base and reduced cost base equal to the market value of the interest that they inherit calculated as at the date of death.
In your case, the house on the property wasn't the deceased's main residence when they died.
Consequently, the first element of the cost base of the house and two hectares of adjacent land (including the land under the house) is the deceased's cost base and reduced cost base calculated as at the date they died. This would be based on its market value when the deceased's parent died.
Question 3
Summary
The market value of your interest in the remainder of the property as at the date the deceased's parent died is used when working out the cost base of the remainder of the property.
Detailed reasoning
The capital gains provisions generally don't subject a deceased person to tax due to them dying. Instead, their liability to CGT is passed to their estate and then onto the beneficiary of their estate that inherits a particular asset that the deceased owned just before they died.
For most assets, the liability to CGT is passed on by the estate or beneficiary inheriting the cost base and reduced cost base of the asset as well as inheriting the asset.
However, the deceased would not have a CGT liability if they acquired the property before 20 September 1985. In such cases, the estate or beneficiary inherits a cost base and reduced cost base equal to the market value of the interest that they inherit.
The deceased's parent acquired the property before 20 September 1985. Consequently, the first element of the cost base of the remainder of the property is its market value calculated as at the date that the deceased's parent died.
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