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Ruling
Subject: Capital gains tax
Question
Will the Commissioner accept the market valuation to be the cost base for the total interests held in the property?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
In Year A, two individuals acquired a property.
One of the individuals died in Year B and consequently their interest in the property passed to the other individual.
The other individual died in Year C.
The Executor was able to sell the property.
A valuation was undertaken by a certified practising valuer on to determine the market value of the property on the date of death of the second individual.
Relevant legislative provisions
Income Tax Assessment Act 1997 section128-15(4).
Reasons for decision
Taxation Determination TD 2000/31 states that if you own an interest in a capital gains tax (CGT) asset and you acquire another interest in that asset, the interests will remain separate CGT assets for capital gains tax purposes. If a CGT event occurs in relation to the interests held in the asset, there is a separate date of acquisition for each interest, a separate cost base for each interest and the capital proceeds are determined separately for each interest.
In your case, the deceased had acquired two separate interests in the property at different times. The first interest was acquired in Year A when the property was originally purchased and the second interest on the date the deceased's spouse passed away in Year B.
Interest acquired prior to 20 September 1985,
If the deceased person acquired an asset or interest in an asset before 20 September 1985, the first element of the cost base and reduced cost base is the market value of the asset on the day the person died (section 128-15 of the Income Tax Assessment Act 1997 (ITAA 1997).
In your case, the deceased acquired a 50% interest in the property in Year A when the property was originally purchased. The first element of the cost base is the market value of the deceased's interest held in the property on the deceased's date of death in Year C. Therefore, the market valuation obtained on the property can be used as the cost base for the 50% interest acquired in Year A.
Interest acquired after 20 September 1985.
If the deceased acquired an asset or an interest in an asset on or after 20 September 1985, the first element of your cost base and reduced cost base is taken to be the cost base and reduced cost base of the asset on the day the person died (section 128-15 of the ITAA 1997).
In your case, the deceased acquired the second 50% interest in the property on the date their spouse died in Year D. As this interest was originally acquired by the spouse prior to 20 September 1985, the first element of the deceased's cost base will be the market value of the spouse's interest at the time of spouse's death. The market valuation obtained on the property cannot be used as the cost base for this interest in the property.