Edited version of private advice

Authorisation Number: 1051815150974

Date of advice: 6 April 2021

Ruling

Subject: CGT - asset passing to a beneficiary

Question 1

Is the sale exempt from capital gains tax (CGT) as the property was owned before the 20 September 1985 pre-CGT?

Answer

No.

Question 2

If the sale is subject to CGT, is the cost base the market value of the property as at the deceased date of death?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your parent purchased a property pre capital gains tax (CGT).

The property was not your parent's main residence.

Your parent passed away on ## May 20##.

Your inherited from your parent a 50% ownership interest in the property.

The property was not used for income producing purposes.

You sold your 50% ownership interest in the property on ## December 20##.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 Subsection 128-15(2)

Income Tax Assessment Act 1997 Subsection 128-20(1)

Reasons for decision

Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) contains rules that apply when an asset owned by a person just before they die, passes to their legal personal representative (LPR) or to a beneficiary in a deceased estate.

Subsection 128-15(2) of the ITAA 1997 provides that your date of acquisition of property from a deceased estate, is the date of the deceased's death.

Section 128-15(4) (ITAA 1997) sets out the rules for determining the first element of the cost baseof assets in the hands of the LPR or beneficiary. This is for the purposes of calculating any CGT liability in relation to subsequent CGT events such as selling the asset.

Post CGT assets of the deceased are taken to have been acquired by the LPR or beneficiary for the cost base of the asset in the hands of the deceased at their date of death.

Pre CGT assets of the deceased are taken to have been acquired by the LPR or beneficiary for its market value at the date of the deceased death.

Subsection 128-20(1) of the ITAA 1997 provides that a CGT asset passes to a beneficiary in a deceased estate if the beneficiary becomes the owner of the asset and includes the following:

1.    the asset passes under your will, or that will varied by a court order; or

2.    under a deed of arrangement where:

the beneficiary entered into the deed to settle a claim to participate in the distribution of the estate; and

3.    any consideration given by the beneficiary for the asset consists only of a variation or waiver of a claim to one or more other assets that formed part of the estate.

In your case you have inherited a 50% ownership interest in the property, under subsection 128-15(2) your date of acquisition is your parent's death which is post CGT. You have inherited an asset that was pre-CGT for your parent, therefore you are taken to have acquired the property for its market value at date of your parent's death.

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