Edited version of your private ruling

Authorisation Number: 1012449507608

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Ruling

Subject: Capital gains tax - cost base and acquisition date- deceased estate

Question 1

Under Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997), did the whole of the property pass to you as a beneficiary of your parent's estate on the date of the parent's death?

Answers

Yes

Question 2

Under subsection 128-15(4) of the ITAA 1997, is the first element of the property's cost base, and reduced cost base, the market value of the property on the date of your parent's death?

Answers

Yes

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

The issue date of this private ruling.

Relevant facts and circumstances

Your parent bequeathed the whole of the parent's estate unto taxpayer A, taxpayer B and you as tenants in common in equal shares.

Clause x of the Will states:

I DECLARE that my trustee/trustees will have, in addition to or expansion of any power available at law, the following powers:

…

…APPROPRIATION/PARTITION - To appropriate and/or partition any estate asset towards the entitlement of any beneficiary. The value of the property appropriated or partitioned will be determined by my trustees in a manner they think fit (any costs incurred are to be treated as an administration expense and paid out of my residuary estate). Every determination of value, appropriation and partition will be binding upon all beneficiaries affected by this will.

The Executor to your parent's estate transferred the property to you by exercise of the power of appropriation conferred upon him by section 33(1) of the Trusts Act 1973 as part of your entitlement to an equal distribution of the residue of your parent's estate.

The property was your parent's main residence at the date of the parent's death and was not used to produce assessable income at that time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 subsection 128-15(4)

Income Tax Assessment Act 1997 section 128-20

Does Part IVA apply to this ruling?

No

Question 1

Summary

As the executor of your parent's estate appropriated the property to you to satisfy part of your entitlement in the estate, for capital gains tax (CGT) purposes, you are taken to have acquired the whole of the property on [date of parent's death].

Detailed reasoning

Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens if a CGT asset passed to you as a beneficiary of a deceased estate.

Where a CGT asset passes to a beneficiary in a deceased estate, the beneficiary is taken to have acquired the asset on the date of the deceased's death (ITAA 1997 section 128-15).

Section 128-20 of the ITAA 1997 explains that a CGT asset passes to a beneficiary of a deceased estate if the beneficiary becomes the asset's owner because it is appropriated to the beneficiary by the deceased's legal personal representative (LPR), such as the executor of the estate, in satisfaction of some interest or share in the deceased estate.

A CGT asset does not pass to a beneficiary as part of the estate if the beneficiary becomes the owner of the asset if the LPR transfers it under a power of sale.

Your parent's Will allowed the executor to appropriate and partition estate assets towards payment of any beneficiaries entitlement in the estate. Your parent's three beneficiaries consented to the property being appropriated to you by the executor to satisfy part of your share of the estate.

As such, under Division 128 of the ITAA 1997 the whole of the property passed to you as beneficiary of your parent's estate and, for capital gains tax purposes, you are taken to have acquired the whole of the CGT asset on [date of parent's death].

Question 2

Summary

As the property was your parent's main residence at the date of the parent's death, and was not being used for the purpose of producing assessable income at that time the first element of the cost base and reduced cost base in your hands is the market value of the property on [date of parent's death].

Detailed reasoning

Subsection 128-15(4) provides a table which sets out modifications to the first element of the cost base and reduced cost base of a CGT asset in the hands of a beneficiary of a deceased estate.

Item 3 of the table provides that the first element of the cost base and reduced cost base of a property that:

· was the main residence of the deceased just before death, and

· was not being used for the purpose of producing assessable income at that time,

is the market value of the property on the date of the deceased's death.

You advised the property was your parent's main residence at the date of the parent's death, and was not being used for the purpose of producing assessable income at that time. As such, the first element of the cost base and reduced cost base of the property in your hands is the market value of the property on [date of parent's death].

Further issues for you to consider

A beneficiary can include any expenditure that the legal personal representative would have been able to include at the time the asset passes to the beneficiary in the cost base and reduced cost base.