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This edited version has been archived due to the length of time since original publication.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

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 your private ruling

Authorisation Number: 1012558953589

Ruling

Subject: Capital gains tax - deceased estate - disposal of property

Question:

Is the capital gain made on the disposal of the property disregarded?

Answer:

No.

This ruling applies for the following period

30 June 2014

The scheme commences on

1 July 2013

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 deceased and their spouse jointly purchased a rural property in 19XX.

The Transfer of Title document is dated after 20 September 1985.

The property was used as a hobby farm.

The property has never been used as part of a business.

The deceased's spouse died more than 20 years ago.

The deceased died approximately X years ago.

The deceased's children are the beneficiaries of the deceased's estate.

You are one of the executors as well a beneficiary of the deceased's estate.

You, as an executor of the estate are unaware of any loans that may have been held with any bank in relation to the property.

The executors have exhausted all possible avenues, such as the Land Titles Office and the deceased's solicitor in trying to find any documentation to ascertain when the deceased signed the contract for the purchase of the property.

The property will be disposed of and the proceeds will be distributed to the beneficiaries.

Assumption

Based on the information supplied it is reasonable to assume that the deceased and their spouse signed the contract for the purchase of the property prior to 20 September 1985.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 128-10

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.

The most common capital gains tax (CGT) event that happens to real estate is its disposal - CGT event A1. The time of the event is:

If land is disposed of under a contract, it is taken to have been disposed of when the contract is entered into - not the settlement date.

Joint tenants

For CGT purposes, individuals who own an asset as joint tenants are each treated as if they own an equal interest in the asset. Each joint tenant makes a capital gain or capital loss from an event in line with their interest in the asset.

Therefore, the deceased and their spouse had a 50% interest in the property.

Deceased estate

There is a general rule that CGT applies to any change of ownership of CGT asset, unless the asset was acquired before 20 September 1985.

There is a special rule that allows any capital gain or capital loss made on a CGT asset acquired after 20 September 1985, to be disregarded if, when a person dies, an asset they owned passes:

If the deceased person acquired their asset before 20 September 1985, the first element of your cost base or reduced cost base is the market value of the asset on the day the person died.

If the deceased person acquired their interest on or after 20 September 1985, the first element of your cost base and reduced cost base is taken to be the deceased person's cost base and reduced cost base of the asset on the day the person died.

In your case, the deceased acquired two interests in the property. The deceased acquired their original interest prior to 20 September 1985. The second interest they acquired was on their spouse's date of death for its market value, as the deceased's spouse acquired their interest in the property prior to 20 September 1985.

Therefore, you also have acquired two interests in the property with two different cost bases. Your cost base of the deceased's original interest (acquired prior to 20 September 1985) is the market value of this interest on their date of death. The second interest is acquired for the deceased's cost base, being the market value of this interest on the deceased's spouse's date of death.

Therefore, on the disposal of the property you will make a capital gain or capital loss.

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