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Edited version of your written advice
Authorisation Number: 1012763239732
Ruling
Subject: Cost base
Question
Can you apply the market value substitution rule in section 112-20 of the Income Tax Assessment Act 1997 (ITAA 1997) for an investment property obtained from a deceased estate?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
Prior to 1985 relative A purchased a property.
After 20 September 1985, relative B and C purchased the property from relative A.
The house was renovated and placed on the market.
The house wasn't selling, so relative B purchased relative C's share in the property.
The house became a rental property and remained so until its sale.
Relative B passed away and you obtained a market valuation of the property at this date.
The title to the property was placed into your name as you were a beneficiary of relative B's estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 128-15(4)
Reasons for decision
Section 112-5 of the ITAA 1997 discusses the modifications that can occur to the cost base and reduced cost base of a CGT asset you acquire.
Subdivision 112-A of the ITAA 1997 sets out the general modification to the cost base rules including the market value substitution rule.
Subdivision 112-B of the ITAA 1997 sets out which element of the cost base (or reduced cost base) of a CGT asset is affected by various situations. The effect of death is specifically considered by section 112-55 of the ITAA 1997 and provides that the relevant modification is contained in section 128-15 of the ITAA 1997.
It is a general rule of statutory interpretation that where there is a conflict between general and specific provisions, the specific provision prevails: Perpetual Executors and Trustees Association of Australia Ltd v. Federal Commissioner of Taxation (1948) 77 CLR 1.
Accordingly, section 128-15 prevails over the general market value substitution rule in section 112-20A of the ITAA 1997.