Edited version of private ruling

Authorisation Number: 1011728789378

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Ruling

Subject: Capital Gains Tax

Question and Answer

Is the sale of the property you inherited from your deceased spouse subject to Capital Gains Tax?

Yes

This ruling applies for the following period

1 July 2010 to 30 June 2011

Relevant facts and circumstances

Decades ago you spouse inherited vacant land from a family member.

The title of the inherited land was in your spouses name only.

Recently:

· your spouse passed away.

· you inherited the vacant land from your spouse.

· you entered into a contract for sale of the vacant land.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 104-10(1)

Income Tax Assessment Act 1997 Subsection 104-10(3)

Capital Gains Tax Event

When land is disposed of under contract, Capital Gains Tax (CGT) event A1 in subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) happens. The time of the disposal is when the contract is made (paragraph 104-10(3)(a) of the ITAA 1997).

Where the contract settles in a later year of income, the taxpayer from whom the CGT event happens is required to include a capital gain or loss in the year of income in which the contract was made, not in the year of income in which the contract settled (Taxation Determination TD 94/89).

You entered into contract to sell your property in xx, therefore the CGT A1 event happened on this date and you are required to include any capital gain or loss in the financial year ended 30 June xx.

Cost Base

If the deceased person acquired their asset before 20 September 1985, the first element of you cost base and reduced cost base (that is, the amount take to have been paid for the asset) is the market value of the asset on the day the person died.

You have stated, upon your spouse's death you sought an up to date valuation of the property; this will be your cost base.

The cost base of a CGT asset is made up of five elements;

1. money or property given for the asset

2. incidental costs of acquiring the CGT asset or that relate to the CGT asset

3. cost of owning the asset

4. capital costs to increase or preserve the value of your asset or to install or move it

5. capital costs of preserving or defending your ownership of or rights to your asset.

Elements 1, 2 and 3 are relevant to your situation.

Element 1

The market value of the property when your spouse passed away.

Element 2

There are nine incidental costs you may have incurred in acquiring the asset or in relation to the CGT event that happens, including its disposal. They are:

1. remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser (you can only include the cost of advice concerning the operation of the tax law as an incidental cost if the advice was provided by a recognised tax adviser and you incurred the cost after 30 June 1989)

1. costs of transfer

1. stamp duty or other similar duty

1. costs of advertising or marketing (but not entertainment) to find a seller or buyer

1. costs relating to the making of any valuation or apportionment to determine your capital gain or capital loss

1. search fees relating to an asset (such as fees to check land titles and similar fees, but not travel costs to find an asset suitable for purchase)

1. the cost of a conveyance kit (or a similar cost)

1. borrowing expenses (such as loan application fees and mortgage discharge fees)

1. expenditure that

o is incurred by the head company of a consolidated group to an entity that is not a member of the group, and

o reasonably relates to a CGT asset held by the head company, and

o is incurred because of a transaction that is between members of the group.

You do not include costs if you:

· have claimed a tax deduction for them in any year, or

· omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.

Element 3

The costs of owning an asset include rates, land taxes, repairs and insurance premiums. Non-deductible interest on borrowings to finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur to increase an asset's value are also third element costs.

You do not include such costs if you acquired the asset before 21 August 1991. Nor do you include them if you:

· have claimed a tax deduction for them in any income year, or

· omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.

You cannot include them at all in the cost base of collectables or personal use assets.

You cannot index these costs or use them to work out a capital loss.

Any net capital gain you may have will be taxed at your marginal rate.

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