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Edited version of private advice
Authorisation Number: 1012675805244
Ruling
Subject: CGT - deceased estate - cost base
Question and answer
Is the first element of the cost base when calculating capital gains the market value at the date of the death of the life tenant?
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
Your sibling died a number of years ago.
Your sibling had a house which they purchased after 20 September 1985 and lived in it as their main residence until their death.
The property was bequeathed to you and your sibling with a life tenancy granted under the will which allowed the life tenant to live in the property for the duration of their life and receive the total benefits derived from the property.
The life tenant occupied the property for a number of years and then they vacated the property at which point it was rented out with the life tenant receiving the income under the will.
The life tenant died a number of years ago.
The property continued to be rented by you and your sibling until it was sold.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 128-15.
Reasons for decision
The capital gains tax (CGT) provisions are contained in Part 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997). CGT is the tax you pay on certain capital gains you make. You make a capital gain or a capital loss when a 'CGT event' happens (section 102-20 of the ITAA 1997). The most common CGT event A1 happens when you dispose of the asset to another party (for example disposal of a dwelling) (section 104-10 of the ITAA 1997).
Generally, assets a person inherits through a deceased estate are acquired on the date of death (section 128-15 of the ITAA 1997). Therefore, you as a beneficiary and remaindermen of the property are taken to have acquired your share of the property on the day your sibling died.
Section 128-15(4) of the ITAA 1997 outlines the cost base rules. This section states where you acquire your interest in a CGT asset which the deceased acquired on or after 20 September 1985, the first element of the cost base is the cost base of the asset on the day the individual died.
The first element of the cost base will be the market value of the property on the day your sibling died.