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Edited version of your private ruling
Authorisation Number: 1012413898134
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Subject: Capital gains tax - real property
Question:
Does the real property you own at your death, form part of your estate?
Answer:
Yes.
This ruling applies for the following period:
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 2011
Relevant facts:
You and your spouse own a property.
You obtained a mortgage to purchase the property.
The property is occupied by your child, who pays you rent.
The property has always been your child's main residence.
You and your spouse will leave the property to your child in your wills.
Relevant legislative provisions:
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 110-25
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 section 128-10
Income Tax Assessment Act 1997 subsection 128-15(2)
Income Tax Assessment Act 1997 subsection 128-20(1)
Reasons for decision:
A capital gain or capital loss may arise if a Capital Gains Tax (CGT) event happens to a CGT asset. A CGT asset is any kind of property, or a legal or equitable right that is not property.
The most common CGT event happens if you dispose of an asset to someone else, the disposal of a CGT asset causes a CGT event A1 to happen. You dispose of an asset when a change of ownership occurs from you to another entity. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs.
You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base.
When a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset owned by the deceased, just before death, is generally disregarded.
When a person dies their assets vest in their trustee or executor, any capital gain or capital loss from that CGT event happening to the CGT assets owned by the deceased, just before death, is generally disregarded.
When a beneficiary acquires an asset, the cost base and reduced cost base of the asset in the hands of the beneficiary are modified. The cost base of the asset is the deceased's cost base on the day the deceased passed away.
The cost base is made up of five elements:
1. The first element is made up of money paid or required to be paid to acquire the CGT asset.
2. The second element will include incidental costs of acquiring the asset, or costs in relation to the CGT event.
3. The third element consists of non-capital costs incurred in connection with your ownership of a CGT asset.
4. The fourth element includes capital expenditure you incur to increase the value of the CGT asset if the expenditure is reflected in the state or nature of the asset at the time of the CGT event.
5. This includes capital expenditure you incur to preserve or defend your title or rights to the asset.
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