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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your private ruling

Authorisation Number: 1012341369388

Ruling

Subject: CGT - cost base

Question:

Will the first element of the cost base of the property be substituted with your share of the market value of the property at the time of transfer?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

A family member gifted a property to you and your spouse.

The title of the property passed to you and your spouse.

At that time you had the house valued by a real estate agent to determine the stamp duty payable.

The property was built prior to 1985 and was never used as a primary residence or to generate a rental return.

Since being transferred to you and your spouse, the house has still not been used as a primary residence or to generate a rental return.

Relevant legislative provisions

Income Tax Assessment Act Section 110-25

Income Tax Assessment Act Section 110-55

Income Tax Assessment Act Section 112-20

Reasons for decision

Under the general cost base and reduced cost base rules, the first element of the cost base and reduced cost base of a capital gains tax (CGT) asset is the sum of the amount paid (or required to be paid) and the market value of property given (or required to be given) in respect of acquiring it. The general rules may be modified if the market value substitution rule in section 112-20 of the Income Tax Assessment Act 1997 (ITAA 1997) applies. 

The market value substitution rule generally applies where a taxpayer:

If the market value substitution rule applies, the first element of the cost base or reduced cost base of a CGT asset that is acquired from another entity is its market value at the time of acquisition (subsection 112-20(1) of the ITAA 1997).

In your case, you acquired a property and did not incur any expenditure to acquire it. The market value substitution rule contained in section 112-20 of the ITAA 1997 applies in this case. Accordingly, the first element of your cost base of the property will be substituted with your share of the market value of the property at the time of transfer.


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