| Disclaimer This edited version has been archived due to the length of time since original publication.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 written advice
Authorisation Number: 1051238138087
Date of advice: 15 June 2017
Ruling
Subject: Capital gain tax - cost base
Question 1
Is the capital gain made on the disposal of your interest in the property acquired upon the death of Parent A disregarded?
Answer
No.
Question 2
Will the first element of the cost base for the original interest be the market value of the interest on the date Parent A passed away?
Answer
Yes.
Question 3
Is the capital gain made on the disposal of your interest in the property acquired upon the death of Parent B disregarded?
Answer
No.
Question 4
Will the first element of the cost base for the subsequent interest be the market value of the interest on the date Parent B passed away?
Answer
Yes.
This ruling applies for the following period:
Income year ending 30 June 2017.
The scheme commences on:
DDMMYY
Relevant facts and circumstances
Prior to 19 September 1985, one of your parents (Parent A) acquired a property (the property).
The property was occupied as the main residence of both your parents.
Sometime after 20 September 1985, Parent A passed away.
Under Parent A’s Will, the property was equally split between your other parent (Parent B), your sibling and yourself (one third each).
Parent B continued to treat the dwelling, along with your sibling as their main residence from the date of Parent A’s death until Parent B passed away some years later.
Under Parent B’s Will, their one-third share acquired on the death of Parent A was equally split between you and your sibling.
Neither Parent A’s nor Parent B’s Wills made provision for your sibling to use or reside at the property.
Your sibling continued to treat the dwelling as their main residence from the date of Parent B’s death until the property was recently sold.
Relevant legislative provisions
Income Tax Assessment Act Part 3-1
Income Tax Assessment Act Part 3-3
Income Tax Assessment Act Section 118-195
Income Tax Assessment Act Section 118-200
Income Tax Assessment Act Section 118-205
Income Tax Assessment Act Section 128-15
Reasons for decision
Summary
You cannot disregard the capital gain on either of your two interests in the property. You are eligible for partial main residence exemption in relation to each interest. Each interest will have a different cost base, where the first element will be the market value on the date of death of the person it is acquired from.
Your initial interest
Cost base
Where an asset of the deceased passes to a beneficiary, the first element of the cost base or reduced cost base of a dwelling – its acquisition cost – is its market value at the date of death. The cost base or reduced cost base also includes amounts that the trustee of the deceased's estate would have been able to include in the cost base or reduced cost base
In this case, the first element of the cost base of your interest acquired upon the death of Parent A will be 1/3 of the market value of the property as at their date of death.
Main residence exemption
In this case, you are eligible for an exemption dwelling on the disposal of your interest in the dwelling, where:
● you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
● the dwelling was, from the deceased’s death until your ownership interest ends, the main residence of the spouse of the deceased immediately before the death.
However, as it has been established that a capital gain or loss has been made and a full exemption is not available, a partial exemption may apply. The following formula is used to work out a partial exemption:
Capital Gain * Non-main residence days / Total days
Non-main residence days is the sum of:
1) The number of days in the deceased's ownership period when the dwelling was not his or her main residence; and
2) The number of days from death until the taxpayer's ownership interest ends when the dwelling was not the main residence of one of the following:
a) The spouse of the deceased at the time of death;
b) Someone entitled to occupy the dwelling under the will; or
c) A beneficiary who brought about the CGT event.
Total days is the number of days from the acquisition of the dwelling by the deceased until the taxpayer's ownership interest ends.
In this case, your 1/3 interest acquired upon the death of Parent A will not be eligible for the full main residence exemption. Your total days will be from the date of Parent A’s death until settlement of the dwelling. Your non-main residence days will from the date of Parent B’s death until settlement of the dwelling.
Your subsequent interest
Cost base
The first element of the cost base of your interest in the dwelling inherited by Parent B from Parent A will be the market value of that 1/6 interest on the date of Parent B’s death.
Main residence exemption
The formula for calculating the partial main residence exemption is adjusted if the deceased individual also acquired the interest in the dwelling on or after 20 September 1985 as a beneficiary (or trustee) of a deceased estate. The main residence exemption is calculated with regard to the number of days the dwelling was the main residence of you and the previous beneficiaries.
As you have acquired an ownership interest in the dwelling after 20 September 1985 through a chain of deceased estates, the partial exemption will apply to take into account the times when the dwelling was the main residence of an individual earlier in the inheritance chain. In this case, your non-main residence days will be from the date of Parent B’s death until settlement of the dwelling. Your total days will be from the date of Parent A’s death until settlement of the dwelling.
Further information
Discount capital gain
You are eligible to apply the 50% CGT discount on your interests acquired if you do not chose to use the indexation method to determine the cost base of the asset.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
