Edited version of your written advice

Authorisation Number: 1013131699409

Ruling

Date of advice: 11 January 2017

Subject: CGT - Joint Tenant - Acquisition at date of death - Disposal

Question

Are you entitled to disregard the capital gain on the disposal of the post CGT interest in property A?

Answer

No.

Question

Are you entitled to disregard the capital gain on the disposal of the pre CGT interest in property A?

Answer

Yes.

Question

Do you qualify for the 50% CGT discount?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2016.

The scheme commences on

1 July 2015.

Relevant facts and circumstances

You and your spouse purchased a parcel of land and built a house (dwelling A) on the property before 20 September 1985 (pre CGT interest).

The house was you and your spouse's main residence.

In 20XX a new home (dwelling B) was built on the same parcel of land at the opposite end to dwelling A.

Dwelling B was the main residence for both you and your spouse.

Your spouse passed away in 20YY and their portion of the property passed to you, as the surviving joint tenant (post CGT interest).

Dwelling A had been rented out since 20YY.

You included the rental income and claimed the associated deductions in your tax return.

The land was subdivided into two lots - one containing dwelling A (property A), one containing dwelling B.

Property A was sold in 20ZZ.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 104-5

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 section 115-5

Income Tax Assessment Act 1997 subsection 128-50

Reasons for decision

Summary

Your initial purchase of the dwelling is pre CGT; therefore it is exempt from CGT on disposal. The interest inherited by you on the passing of your spouse is considered to be a post CGT asset acquired on their date of death therefore CGT applies, yet as you have owned the inheritance for greater than 12 months you are eligible for a 50% reduction in Capital Gains.

Detailed reasoning

Joint Tenant Acquiring Interest

In the purchase of a property as joint tenants there are two equal interests in the property, your interest and your spouse's interest.

As discussed in section 128-50 if the joint tenant who dies acquired their interest in the asset before 20 September 1985, the first element of the cost base of the interest you acquire from them is the market value of their interest on the day they died.

As the surviving joint tenants initial interest in the property is before 20 September 1985, their interest is exempt from CGT on disposal.

Discount capital gain

As outlined in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 97) CGT event A1 will happen when you dispose of the property. You will make a capital gain if the capital proceeds from the disposal are more than the cost base. You will make a capital loss of those capital proceeds are less than the reduced cost. 

You will be eligible for the discount capital gains where:

● you are an individual

● the CGT event happened after 21 September 1999

● the capital gain must be calculated without any reference to indexation of the cost base; and

● the CGT asset was acquired more than 12 months before the CGT event.

The discount percentage is 50%.

Elements of the cost base

The cost base of a capital gains tax (CGT) asset is made up of five elements. You need to add together all these elements to work out your cost base for each CGT asset.

First element

This element includes money paid, or required to be paid, for the asset and the market value of property given, or required to be given, to acquire the asset.

Second element

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

Third element

The costs of owning an asset include rates, land taxes, repairs, maintenance and insurance premiums.

Also, you do not include them if you:

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

● did not claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not ended.

Fourth element

The fourth element is capital costs you incurred for the purpose, or the expected effect, of increasing or preserving the asset's value, for example, costs incurred in applying (successfully or unsuccessfully) for zoning changes. It also includes capital costs you incurred that relate to installing or moving an asset.

Fifth element

This element includes capital expenditure you spend to preserve or defend your ownership of, or rights to, the asset.

Application to your circumstances

You and your spouse purchased the property pre CGT, as joint tenants.

When your spouse passed away you inherited 50% of the property as a post-CGT asset, which you were taken to have acquired at its market value at the date of your spouse's death

You now have two interests in the property, your initial 50% interest as a pre-CGT asset, and the 50% interest you inherited from your spouse as a post-CGT asset.

As a result you are entitled to a CGT exemption on the disposal of your initial interest but you will have a CGT obligation on the disposal of the 50% interest you inherited from your spouse.

50% Discount

As you inherited your spouse's interest in the property in 20YY, you have owned the dwelling for greater than 12 months. You are eligible for a 50% reduction in Capital Gains.

ATO view documents

TD1999/72

Ato.gov.au Elements of the cost base QC17161

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