Edited version of private advice

Authorisation Number: 1051749187685

Date of advice: 17 September 2020

Ruling

Subject: Capital gains tax - deceased estates

Question

Is the first element of the cost base of the property the market value at the date of the deceased's death?

Answer

Yes. The first element of the cost base of the property is the market value at the date of the deceased's death, as the deceased held it as a pre capital gains tax (CGT) asset.

This is because the asset the deceased held before the strata plan had been completed, was acquired prior to 20 September 1985 and we accept that the deceased had chosen the roll-over relief under section 160ZZPG of the Income Tax Assessment Act 1936.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In 19XX the children's parent gifted the Property to his children, Child One, Child Two, Child Three, Child Four and Child Five, so that the five children could each build a unit on the Property.

On XX July 19XX, Child One sent a letter to their siblings outlining their parent's agreement to gift the property to the children for them to develop, at their own costs.

On XX March 19XX development approval was obtained.

On the XX of March 19XX Child One sent a letter to the Solicitor and enclosed:

(a)  A Transfer under which the parent transferred the Property to the four children and also them representing an interest they continued to hold for Child Two as tenants in common in equal shares). The Transfer was signed by the parent but not dated or signed by the transferees,

(b)  The certificate of title to the Property

(c)   A signed authority from Child Five authorising the solicitor to sign the document on their behalf, and

(d)  An authority from Child One authorising the Solicitor to sign the document on their behalf.

In 19XX, the children and the parent entered into a one-page document authorising Child One to enter into the building contract in relation to the development of the Property.

In 19XX, a formal syndicate agreement, (the Agreement) was entered into between the children and the parent.

Clause three of the Agreement states:

"It is declared in relation to the land that the parties hereto are entitled to hold the land in equal shares as tenants in common pursuant to a Memorandum of Transfer executed on today's date by the current registered proprietor of such land the transfer being more specifically described in the First Schedule hereto".

A clause of the Agreement states:

"Each party hereto shall be deemed as at the date of this Deed to hold the projected units in the project of the Syndicate as follows:

Child Five - No.1 unit;

Parent - No. 2 unit;

Child Three - No. 3 unit;

Child Four - No. 4 unit;

Child One - No. 5 unit.

Pursuant to clause 35 of the Agreement, each party was required to contribute to the construction of their unit (and did so) based on the unit's market value as compared to the market value of the whole completed unit block.

The building was completed and the Property paid for prior to 20 September 1985.

Various family members had moved into their respective units in 19XX.

In 19XX the Solicitor sent Child One a letter indicating that they were attending to the stamp duty requirements of the Transfer signed by the parent in favour of the children and the parent as tenants in common in equal shares.

In 19XX the strata plan for the Property was completed.

In 19XX Child One sent the Solicitor a letter following up the registration of the Transfer. Child One also sought advice from the Solicitor on how to deal with complications arising from the fact that the Property was held as tenants in common by the family when each family member had (pursuant to the Agreement) an absolute entitlement to respective units.

In 19XX Child One sent the Solicitor a letter reiterating that each family member had (pursuant to a clause of the Agreement) an absolute entitlement to respective units.

After 20 September 1985 the Solicitor wrote to confirm lodgement of the strata plan for the Property had occurred and the plan had been allotted a number.

The strata plan was registered and five new certificates of title were issued in the parent's name. This would indicate that the Solicitor had never actually registered the Transfer transferring ownership of the Property from the parent to the five siblings as tenants in common in equal shares.

In 19XX, Transfers were signed whereby the parent transferred 100% of the following lots in the strata plan to the following persons for nominal consideration of $1.00:

a)    Child Five - Lot 1 in SP XXXXX

b)    Child Four - Lot 2 in SP XXXXX

c)    Child Three - Lot 3 in SP XXXXX

d)    Child Two - Lot 4 in SP XXXXX, and

e)    Child One - Lot 5 in SP XXXXX

Based on the information provided, the Commissioner accepts that Child One chose to apply the rollover relief under section 160ZZPG of the Income Tax Assessment Act 1936.

Child One passed away (the deceased).

Under the will of the deceased, Lot 5 in SP XXXX will pass on trust to be held by the deceased's children in equal shares.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 160ZZPG

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 subsection 128-15 (4)

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