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Edited version of private advice
Authorisation Number: 1052014883486
Date of advice: 3 August 2022
Ruling
Subject: CGT - cost base
Question
Is the additional amount paid to your siblings under a deed of arrangement included in the cost base of the property for capital gains tax purposes?
Answer
Yes.
The cost base of an asset for capital gains tax purposes includes the money you paid, or are required to pay, in respect of acquiring it.
The additional amount paid by you to your siblings under the Deed of Arrangement constitutes amounts required to be paid in respect of acquiring your share of the property and therefore will form part of cost base of the asset for capital gains tax purposes.
Alternatively, section 112-20 of the Income Tax Assessment Act 1997 provides that if you are not dealing at arm's length then the cost base of your asset is its market value. As the additional amount represents the difference between the amount you paid your siblings up front and the market value of the property as determined by the public trustee, the cost base includes the additional amount paid under the deed of arrangement regardless.
This ruling applies for the following:
Year ended 30 June 20XX.
The scheme commences on:
1 July 20XX.
Relevant facts and circumstances
Sometime ago you inherited a share of a property (the property) located when your relative passed away.
The remaining XXXX shares of the property were inherited by your XXXX siblings.
The public trustee provided a market valuation.
You wanted to own the property outright.
You could not afford to purchase your XXXX siblings shares of the property at full market value.
Your XXXX siblings agreed to reduce the price of their share of the property.
This was a discount in the market value of your XXXX siblings shares of the property.
You purchased your XXXX siblings' shares of the property.
A short time later your parent passed away (the deceased).
When the deceased passed away your XXXX siblings requested that you pay them an additional amount from the deceased's estate, representing the difference between the amount you paid for the property and its market value.
You and your XXXX siblings drew up and agreed to a Deed of Arrangement which stated that you agreed to pay your XXXX siblings amounts from your share of the estate in consideration of you acquiring the property at less than market value.
Sometime later you sold, and settlement occurred on the property
Relevant legislative provisions
Income Tax Assessment Act 1997 section 110-25
Income Tax Assessment Act 1997 section 112-20
Income Tax Assessment Act 1997 section 995-1
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