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Edited version of your written advice
Authorisation Number: 1012882686635
Date of advice: 22 September 2015
Ruling
Subject: Inherited assets
Question 1
Is there any tax payable on assets received as an inheritance from an overseas estate?
Answer
No
Question 2
Is capital gains tax payable when the assets are sold?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You have inherited assets from a foreign deceased estate.
You do not intend to use the assets for business or profit making purposes.
You may sell some of the assets at times if you require the funds.
You will not sell more than $10,000 of assets at any one time.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 108-20
Income Tax Assessment Act 1997 Section 118-10
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
Question 1
Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide for an Australian resident to be taxed on income earned in Australia and overseas.
Income in this context means 'income according to ordinary concepts' and statutory income. Statutory income is any item that is specifically included in your assessable income by provisions of the tax law, such as a capital gain.
Receiving cash or an asset as an inheritance is not income - it is not received periodically, nor expected or relied upon. Hence cash or assets received from a deceased estate are not assessable income.
There is therefore no tax payable on the assets you have inherited from your parent's estate.
Question 2
A 'personal use asset' includes a CGT asset, except a collectable, that is used or kept mainly for your (or your associate's) personal use or enjoyment: paragraph 108-20(2)(a) of the ITAA 1997. Assets are a form of property and accordingly are CGT assets: section 108-5 of the ITAA 1997.
In Favaro v FC of T (1996) 34 ATR 1; 96 ATC 4975 the Federal Court held that Italian currency which was converted to Australian currency was not a 'personal use asset' under the equivalent provision of the Income Tax Assessment Act 1936 (ITAA 1936). The Court accepted the Commissioner's submission that 'the expression "personal use" is used in s 160B of the ITAA in contradistinction to use for business or profit making purposes' (Subsection 160B(1) of the ITAA 1936 was rewritten as subsection 108-20(2) of the ITAA 1997).
The word 'contradistinction' means distinction by contrast or opposition ( The Australian Oxford Dictionary , 1999, Oxford University Press, Melbourne). Therefore, an asset that is not used for business or profit making purposes is, by default, used or kept mainly for personal use and enjoyment. The two categories are mutually exclusive.
In your case, you have received assets from a deceased estate. You do not trade in assets, nor have any intention to sell the assets as a profit-making exercise, rather you will sell the assets only when you may need the funds in the future. As such, it is considered the assets are used or kept mainly for your personal use and enjoyment and are therefore personal use assets under paragraph 108-20(2)(a) of the ITAA 1997.
Subsection 118-10(3) of the ITAA 1997 states that any capital gain made on the sale of a personal use asset or part of that asset is disregarded if the asset, or part of the asset, has a cost base of $10,000 or less.
Therefore, provided the assets that you sell are valued at less than $10,000, there is no capital gains tax payable when they are sold.
Section 128-15 of the ITAA 1997 sets out the rules regarding the effect of death on a CGT asset that passes to a beneficiary. Item 3A in the table contained in subsection 128-15(4) of the ITAA 1997 states that you will be taken to have acquired the asset on the day the deceased person died, at the market value of the asset on that day. It is this figure which needs to be taken into account when determining whether the assets you are selling has crossed the $10,000 threshold, and therefore is subject to capital gains tax.