Edited version of private ruling

Authorisation Number: 1011721048216

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Ruling

Subject: Capital Gains Tax

Question

Will Capital Gains Tax (CGT) be payable under the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the disposal of an asset acquired by you in your capacity as a beneficiary of a deceased estate?

Answer

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2010.

The scheme commences on:

1 July 2009

Relevant facts and circumstances

Your parent had purchased a block of land prior to 20 September 1985. Subsequent to that date, you inherited a share in the block from their estate. The land was sold some time later.

Relevant legislative provisions

Income Tax Assessment Act 1997 110-25,

Income Tax Assessment Act 1997 110-35 and

Income Tax Assessment Act 1997 115-100.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Unless otherwise stated, all legislative references in the following Reasons for Decision are to the ITAA 1997.

Detailed reasoning

When you inherit a block of land from a deceased estate, you are taken to have acquired the asset on the day that the deceased taxpayer died. If the deceased had acquired the property before 20 September 1985, the cost of the asset in the hands of the beneficiary is its market value at the date of the taxpayer's death. That will be the case in the present instance, where the block of land was acquired before that date.

As previously advised, any capital gain which you make on disposal of the property is determined by deducting your cost base from the capital proceeds of the sale. The cost base includes not just the value of the property but also any additional costs incurred in acquiring, holding or disposing of it e.g. real estate agent fees. The elements of the cost base are discussed in greater detail at sections 110-25 and 110-35. You have not identified the full extent of any additional costs so we will ignore them for the purposes of this ruling. Nevertheless, you should be mindful of the fact that any relevant expenses can be added to the cost base in determining a final figure.

Bearing in mind that the date on which your parent acquired the block was prior to 20 September 1985, the first element of the cost base of the land for your purposes will be its market value at the date at which your parent died. The capital gain is determined by deducting the cost base from the consideration received on disposal.

Subdivision 115-A provides for a discount on the capital gain which would otherwise be assessable if the requirements of its provisions are met. In your case, the capital gain would qualify for that concession. Section 115-100 allows for a discount of 50% of the capital gain which would otherwise be assessable. That reduces the assessable capital gain by half. Your share of that assessable gain should be added to your assessable income for the relevant year. It will then be subject to tax at your marginal rate of tax.

For assets acquired at or before 21 September 1999, there is an alternative method of calculating your assessable capital gain which involves the indexation of the cost base for movements in the Consumer Price Index. That method can be found at section 114-1. It has not been discussed at length because it is likely to result in a larger capital gain in the present case.