Disclaimer
This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au

This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011570905515

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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Capital gains tax - cost base of inherited shares

1. Is the first element of the cost base or reduced cost base of your inherited shares the cost base or reduced cost base of the shares in the hands of the deceased at the date of death?

Yes.

2. Can you include the brokerage fee you incurred on the sale of the shares in the second element of your cost base or reduced cost base?

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2010.

The scheme commenced on:

1 July 2009.

Relevant facts:

You inherited shares and then sold them. You incurred a brokerage fee when you sold the shares.

The shares you inherited were purchased by the deceased after 20 September 1985. The deceased incurred a brokerage fee on the purchase of the shares.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Section 128-15

Reasons for decision

Shares inherited from deceased estates and capital gains tax (CGT) - general

Shares acquired on or after 20 September 1985 are CGT assets.

For CGT purposes, if you acquire shares as a beneficiary of a deceased estate, you are taken to have acquired the shares on the day the deceased person died. This is the case regardless of when the shares are transferred to you as a beneficiary.

If the date of death of the deceased is after 20 September 1985, the shares you acquired as a beneficiary of the estate will be CGT assets.

CGT - general

You can only make a capital gain or loss when a CGT event happens to a CGT asset you own.

Generally, the gain or loss is made at the time a CGT event happens to the asset.

The most common CGT event is event A1 which happens when a CGT asset you own is disposed of to another person or entity.

You are deemed to have disposed of an asset if a change in ownership occurs from you to another person or entity.

Generally, the time of the event is when the contract for the disposal is entered into. However, if there is no contract, the event occurs when the change of ownership takes place.

If the capital proceeds from the disposal are greater than the asset's cost base, a capital gain is made. A capital loss results if the capital proceeds are less than the asset's reduced cost base.

Any capital gain made from the disposal of a CGT asset is included in your assessable income in the income year in which the CGT event happens.

Cost base and reduced cost base of CGT assets acquired as a beneficiary of a deceased estate

Cost base and reduced cost base - general

Generally, when a person acquires a CGT asset the cost base and reduced cost base of the asset includes the cost of acquiring it, as well as certain other costs associated with acquiring, holding and disposing of the asset.

In all, there are five elements that make up the cost base of a CGT asset. These are:

The reduced cost base of a CGT asset has the same five elements as the cost base, except for the third element. The third element of the reduced cost base relates to balancing adjustments which do not apply to shares.

Cost base and reduced cost base - assets acquired by beneficiaries

For beneficiaries of deceased estates, the rules for determining the first element of the cost base and reduced cost base of a CGT asset that passes to them as a beneficiary are modified. The date the asset was acquired by the deceased person determines the method to be used.

In your case, the shares you inherited were acquired by the deceased after 20 September 1985. In these circumstances, the first element of your cost base and reduced cost base of the shares you inherited is taken to be the cost base or reduced cost base of the shares in the hands of the deceased on the day the person died.

The brokerage fees you incurred when you sold the shares will be included in the second element of your cost base or reduced cost base of the shares.

The deceased's cost base and reduced cost base at the date of death

On the date of the deceased's death, the cost base and reduced cost base of shares will include:

Conclusion

The deceased acquired the shares after 20 September 1985.

You later inherited and sold the shares.

The first element of your cost base or reduced cost base for the shares will be the cost base or reduced cost base of the shares in the hands of the deceased at the date of death.

The second element of your cost base or reduced cost base will include the brokerage fee you incurred when you sold the shares.

General advice

You can rely on this advice to provide you with protection from interest and penalties in the way explained below.

If the advice turns out to be incorrect and you underpay your tax as a result, you will not have to pay a penalty. Nor will you have to pay interest on the underpayment provided you reasonably relied on the advice in good faith. However, even if you don't have to pay a penalty or interest, you will have to pay the correct amount of tax.

A beneficiary can include in their cost base and reduced cost base any expenditure a deceased's legal personal representative (for example, the executor of the estate) would have been able to include in their cost base had they sold the shares instead of distributing them to a beneficiary.

For example, if an executor incurs costs in confirming the validity of the deceased's will, those costs form part of the cost base of the estate's assets. A beneficiary would need to apportion any such costs in line with the value of the estate's assets and the portion of shares inherited.

The nature of any such expense incurred by an executor will determine the element of the cost base or reduced cost base under which it can be included.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).