I gEdited version of private ruling

Authorisation Number: 1011813345693

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Ruling

Subject: Capital gains tax - deceased estate

Question 1

Is any capital gain or loss made on the sale of the home disregarded?

Answer

No.

Question 2

Are costs incurred in selling the home included when calculating the cost base of the dwelling sold?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

Your parents purchased a home some time before 1985. At the time of purchase the land was zoned residential.

At some time afterwards the relevant local council altered their boundaries. The result of this was that your parent's home was transferred from one council to another. The land that your parents home was on was then rezoned as commercial.

This home was your parents main residence up until their deaths.

You and your siblings listed the home for sale. Your attempts to sell the property were hampered due to the zoning of the property as commercial. You continued to market the property through various agents. A contract of sale was signed, and settlement was completed more than two years after your parents deaths.

During this time you continued to lobby the council for a change in zoning. The council refused to do so.

The home has remained empty during the entire period from the date of your parents deaths until the completion of the settlement on the contract of sale, and was not at any time used for income producing purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 109-5

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Section 110-35

Income Tax Assessment Act 1997 Section 115-25

Income Tax Assessment Act 1997 Section 115-100

Income Tax Assessment Act 1997 Section 118-195

Income Tax Assessment Act 1997 Section 128-15

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

Question 1

If you inherit a deceased person's home, you may be exempt or partially exempt when a CGT event happens to it. The rules that apply to this exemption are set out below.

If the deceased acquired the home before 20 September 1985, and you have an ownership interest in a home that passed to you as a beneficiary, you disregard any capital gain or capital loss you make from a CGT event that happens to the home if either of the following applies:

In your case, as it took more than 2 years to complete settlement on the home you cannot disregard a capital gain or loss as per item 1.

As the home was unoccupied for the entire period after the time of your parent's death until the date of settlement, you cannot disregard a capital gain or loss as per item 2.

Accordingly, any capital gain or loss made on the sale of the home cannot be disregarded.

Question 2

If you acquire a home as a beneficiary of a deceased estate there are special rules for calculating your cost base.

These rules apply in calculating any capital gain or capital loss when a CGT event happens to the home.

The cost base of a CGT asset includes costs associated with acquiring, holding and disposing of the asset.

The cost base of a CGT asset is made up of five elements:

1. Money or property given for the asset

2. Incidental costs of acquiring the CGT asset or that relate to that event

3. Costs of owning the asset

4. Capital costs to increase or preserve the value of your asset or to install or move it

5. Capital costs of preserving or defending your ownership of rights to your asset

You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.

The first element of the cost base and reduced cost base of a home (its acquisition cost) is its market value at the date of death if either:

· the dwelling was acquired by the deceased before 20 September 1985, or

· the dwelling passes to you after 20 August 1996 (but not as a joint tenant), and it was the main residence of the deceased immediately before their death and was not being used to produce income at that date.

The second element of the cost base are incidental costs. You may have incurred several incidental costs that can be included in your asset's cost base, being:

· Fees of a surveyor, valuer, auctioneer, accountant, broker, agent or consultant.

· Transfer costs.

· Stamp duty or other similar duty.

· Costs of advertising or marketing to find a buyer.

· Costs relating to valuation.

The third element of the cost base are costs of owning the asset. You may have incurred this type of costs in regards to expenses such as:

· Costs of maintaining, repairing or insuring the asset.

Rates or land tax

The fourth element of the cost base are costs relating to capital expenditure to enhance the value of the asset. This would include, for example, any renovations.

The fifth element are any costs that you may have incurred in preserving or defending your title, such any legal costs you may have incurred in preserving or defending your title to the asset.

As you are an individual and you acquired the home more than 12 months before it was sold you can use the discount method to calculate your capital gain. That is, you apply the discount percentage of 50% to reduce your capital gain.