Edited version of your private ruling

Authorisation Number: 1012454968004

Ruling

Subject: CGT - deceased estate

Question 1

Does the disposal of the deceased's coins, jewellery and other personal effects trigger a CGT event?

Answer

Yes

Question 2

Will the cost base of the assets be the market value on the date of the deceased's death?

Answer

Yes

Question 3

Will you make a capital loss on the disposal of the coins and jewellery?

Answer

Yes, however these capital losses are only able to be offset against capital gains from other collectables.

Question 4

Will you make a capital loss on the disposal of the personal effects?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You were appointed to administer the deceased's estate.

The deceased was single at the time of their death.

Assets of the deceased's estate included a property that was purchased prior to 20 September 1985, coins, jewellery, other personal effects and cash.

An auctioneer's valuation was conducted on the assets of the estate. The value of the items held by State Trustees as of the date of death included:

· Coins ($X)

· Jewellery ($X)

· Other personal effects - including gold bullion and silver ingots ($X)

· Total $X

The total of the above listed assets were sold for less than their value.

The executor, who is also one of the beneficiaries of the estate is unable to determine when the deceased acquired the assets or for what amount. They are also unsure which assets were pre-CGT and if the assets were purchased or inherited by the deceased.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 108-10

Income Tax Assessment Act 1997 Section 108-20

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 Subsection 128-15(2)

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

Reasons for decision

Summary

CGT event A1 occurred when the coins, jewellery and other personal effects were disposed of. As the acquisition date and price of the assets are unable to be determined, the Commissioner considers it would be reasonable to use the market value on the date of the deceased's death as the cost base for the assets.

Any capital loss made on the coins and jewellery is only able to be offset against capital gains from other collectables. Any capital loss made on the other personal effects is disregarded.

Detailed Reasoning

CGT event

Under Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) when a person dies a capital gain or capital loss from a capital gains tax (CGT) event that results from a CGT asset the person owned just before dying is disregarded. In accordance with subsection 128-15(2) of the ITAA 1997, a legal personal representative (LPR) or a beneficiary is taken to have acquired the asset on the day the deceased died. Any subsequent disposal by the LPR or beneficiary is a CGT event which will result in a capital gain or loss.

When the coins, jewellery and other personal effects were disposed of, CGT event A1 occurred.

Cost base

The table in subsection 128-15(4) of the ITAA 1997 sets out the cost base and reduced cost base of a deceased persons assets in the hands of the LPR. It states that the first element of the cost base of an asset that was acquired by the deceased before 20 September 1985 (pre-CGT) is the market value on the date of death. The first element of the cost base of an asset that was acquired by the deceased on or after 20 September 1985 (post-CGT) is the cost base to the deceased on the date of death.

However the deceased died without leaving any records to indicate the acquisition dates or prices of the coins, jewellery and other personal effects. In this case, the Commissioner considers that it would be reasonable to take the market value on the date of the deceased death as the cost base (or reduced cost base) of the assets in question.

Capital loss - collectables

A collectable is defined as being one of the following if it is mainly used of kept for your own personal use or enjoyment:

· artwork, jewellery, an antique, or a coin or medallion

· a rare folio, manuscript or book; or

· a postage stamp or first day cover.

The deceased's estate included various coins and items of jewellery. These items are considered to be collectables for CGT purposes.

A capital loss made from a collectable can only be used to reduce capital gains from collectables (subsection 108-10(1) of the ITAA 1997). Accordingly, the capital losses made on the disposal of the deceased's coins and jewellery can only be used to reduce capital gains from other collectables.

Capital loss - personal use assets

A personal use asset is:

· A CGT asset, other than a collectable, that you use or keep mainly for your personal use or enjoyment

· an option or a right to acquire a personal use asset

· a debt resulting from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment, or

· a debt resulting from you doing something other than gaining or producing your assessable income or carrying on a business.

ATO Interpretative Decision ATO ID 2003/451 concludes that gold nuggets are 'personal use assets' under subsection 108-20(2) of the ITAA 1997 if they are collected while pursuing a hobby and not used in the course of carrying on a business or profit making activity. Accordingly, the gold bullion and silver ingots that are grouped as 'other personal effects', are classified as personal use assets.

Any capital loss made from a personal use asset is disregarded under subsection 108-20(1) of the ITAA 1997. Accordingly, the capital losses incurred from the sale of the other personal effects are disregarded.