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Edited version of your private ruling
Authorisation Number: 1012461567117
Ruling
Subject: CGT - deceased estate assessability and cost base.
Question 1
Is the capital gain on the sale of the property under the terms of the will assessable to the estate?
Answer
Yes
Question 2
Is the cost base for calculation of the CGT liability on the sale of the property the same as the deceased's cost base?
Answer
Yes
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
Owner A purchased a property (the property) prior to September 1985.
Owner A died in year ended 30 June 19XX and left the property to Owner B under the terms of the will.
Owner B rented out the property.
Owner B died in year ended 30 June 19YY.
Owner B left the property to Owner C.
Owner C continued to rent out the property.
Owner C died in the relevant year.
Under the terms of Owner C's will, the property was required to be sold.
The property was sold in the subsequent year.
The proceeds of the property will be shared between Owner C's children.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 128
Income Tax Assessment Act 1997 subsection 128-15(2)
Reasons for decision
Detailed reasoning
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 the disposal of 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.
In your case, the property was sold under the terms of the will and the proceeds will be distributed to the beneficiaries. Therefore, as the CGT event occurred while the property was still part of the deceased estate, the estate will be assessed on the capital gain or capital loss.
Cost base
The first element of the cost base or reduced cost base of a dwelling - its acquisition cost - is its market value at the date of death if:
· the dwelling was acquired by the deceased before 20 September 1985,
· the dwelling passes to you after 20 August 1996 (but not as a joint tenant) and it was the deceased's main residence immediately before their death and was not being used to produce income at that date, or
· the dwelling passes to you as the trustee of a Special Disability Trust.
In any other case, the acquisition cost is the deceased's cost base or reduced cost base on the day they died.
In your case, Owner C acquired the property when Owner B died. Owner B acquired the property before 20 September 1985. Therefore, Owner C's cost base was the market value of the property at the date of Owner B's death.
Therefore, the current cost base of the property for calculating the capital gain or loss on disposal of the property is the same as Owner C's cost base. That is, it is the market value of the property at the date of Owner B's death.