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Edited version of your written advice
Authorisation Number: 1012663718105
Ruling
Subject: Capital Gains Tax
Question
When shares are bequeathed to you from a person who had them bequeathed to them, is the first element of cost base the market value on the day of the first person's death when the shares were first acquired prior to 20 September 1985?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2013
Relevant facts and circumstances
M died after 20 September 1985 and shares held in their name were bequeathed to his spouse (N).
N died after 20 September 1985 and the shares were bequeathed to you.
The shares were acquired by M prior to 20 September 1985.
Relevant legislative provisions
Division 128 of the Income Tax Assessment Act 1997
Subsection 128-15(2) of the Income Tax Assessment Act 1997
Subsection 128-15(4) of the Income Tax Assessment Act 1997
Reasons for decision
The effect of death on capital gains tax (CGT) is outlined in division 128 of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 128-15(2) of the ITAA 1997 states that for the CGT asset of a deceased person, a beneficiary is taken to have acquired the asset on the day the deceased died.
There are special rules relating to the first element of cost base of CGT assets acquired from a deceased person; these are outlined in subsection 128-15(4) of the ITAA 1997. For an asset that the deceased acquired prior to 20 September 1985 (pre-CGT assets) the first element of the asset's cost base is the market value on the date the deceased died. For an asset the deceased acquired on or after 20 September 1985 (post-CGT assets), the first element of the asset's cost base is the cost base of the asset on the day the deceased died.
In your case, you acquired CGT assets of shares after 20 September 1985, when N died. In looking at the date that N acquired those assets it is the date of death of their spouse. As this date is after 20 September 1985, the first element of the cost base for you will be the cost base of each asset on the day N died.
As N had the CGT assets bequeathed to them through a will, the cost base for her will also be calculated through the abovementioned provisions. For M's pre-CGT assets, the first element of their cost base for N is their market value on the date of M's death.
Therefore, the cost base of the pre-CGT assets bequeathed to you from N will be made up of their market value on the date of M's death as well as any other costs under cost base elements 2 to 5.