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Edited version of your written advice
Authorisation Number: 1013029965452
Date of advice: 6 June 2016
Ruling
Subject: Capital gains tax provisions
Question 1
Under subsection 128-15(4) of the Income Tax Assessment Act 1997, is the first element of the property's cost base, and reduced cost base, the market value of the property on the date of your parent's death?
Answer
Yes.
Question 2
Where the property's reduced cost base is more than the capital proceeds, is there any tax payable under the capital gains tax provisions?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts
Your relation's main residence was bought after 1985.
Your relation passed away.
The main residence was passed to you in the will.
After probate you took possession of the house and rented it out. You then sold the property.
The market value of the property on your relation's date of death was more than the capital proceeds.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 128-15
Detailed reasoning
Cost base
Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens if a capital gains tax (CGT) asset passed to you as a beneficiary of a deceased estate.
Where a CGT asset passes to a beneficiary in a deceased estate, the beneficiary is taken to have acquired the asset on the date of the deceased's death (section 128-15 of the ITAA 1997).
Where you acquire a dwelling the deceased had owned, there are special rules for calculating your cost base.
Subsection 128-15(4) of the ITAA 1997 provides a table which sets out modifications to the first element of the cost base and reduced cost base of a CGT asset in the hands of a beneficiary of a deceased estate.
Item 3 of the table provides that the first element of the cost base and reduced cost base of a property that:
• was the main residence of the deceased just before death, and
• was not being used for the purpose of producing assessable income at that time,
is the market value of the property on the date of the deceased's death.
You advised the property was the deceased's main residence at the date of their death, and was not being used for the purpose of producing assessable income at that time. As such, the first element of the cost base and reduced cost base of the property in your hands is the market value of the property on the date of death.
Capital loss
You make a capital gain from the sale of property to the extent that the capital proceeds you receive are more than the cost base of the property. You make a capital loss to the extent that the property's reduced cost base exceeds the capital proceeds.
The property sold for an amount which is less than the market value of the property on the date of death.
Where there are no other elements or adjustments to the reduced cost base and the capital proceeds are less than the reduced cost base, you have made a capital loss.
A capital loss can reduce a capital gain in the current financial year or a capital gain in a future year. Please note, that a capital loss does not reduce your other ordinary assessable income.
For more information about how to work out a capital loss, please refer to the Guide to capital gains tax 2014-15, available at www.ato.gov.au.