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Edited version of your written advice
Authorisation Number: 1013072508285
Date of advice: 16 August 2016
Ruling
Subject: CGT - deceased estate
Question 1
Did the beneficiaries of the deceased estate acquire the main residence portion of the property at market value on the deceased's date of death?
Answer
Yes.
Question 2
Did the beneficiaries of the deceased estate acquire the deceased's pre-CGT interest in the shop premises portion of the property at market value on the deceased's date of death?
Answer
Yes.
Question 3
Did the beneficiaries of the deceased estate acquire the deceased's post-CGT interest in the shop premises portion of the property at market value on the deceased's date of death?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The property is a two storey building containing a family residence on the top floor and commercial premises on the ground floor. It was acquired pre-CGT.
The property was jointly owned by your parents.
The residence was the main residence of your parents.
The commercial premises was occupied by a family business until it was let commercially.
Your parent (A) passed away in 201X.
You have a market valuation at the date of death.
Your parent (B) passed away in 201X
You have a market valuation at the date of death.
As per the will, the property transferred to the deceased's children equally.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1),
Income Tax Assessment Act 1997 Subsection 128-15(4),
Income Tax Assessment Act 1997 Subsection 128-50(2) and
Income Tax Assessment Act 1997 Subsection 128-50(4).
Reasons for decision
When a person dies, their assets devolve (are transferred) to their legal personal representative (LPR) or are acquired by a surviving joint tenant, where the deceased owned those assets as joint tenant with another person. In effect, there is a change of ownership of the assets and, therefore, a CGT event (being a disposal) happens. However, any capital gain or capital loss from this CGT event is disregarded, as is any capital gain or loss that:
• the LPR makes when the asset passes to a beneficiary in the estate, or
• that is made as a result of the asset being acquired by a surviving joint tenant.
Subsection 128-50(2) of the ITAA 1997 explains that when a CGT asset is owned by joint tenants and one of them dies, the surviving joint tenant is taken to have acquired the deceased individual's interest in the asset on the day the individual died.
Section 128-50(4) of the ITAA 1997 explains modifications to the cost base of CGT assets for surviving joint tenants. It provides that if the deceased acquired their share in the asset before 20 September 1985, the first element of your cost base and reduced cost base of that interest, is taken to be the market value of the deceased's share.
In this case, when A passed away in 201X, B acquired their interest in the property at market value. Therefore, at this point in time B now has two interests in the property; 50% acquired in pre-CGT, and 50% acquired in 201X.
B's interests
Subsection 128-15(4) of the ITAA 1997 provides a table which sets out the modifications to the first element of the cost base, or reduced cost base, of the CGT asset in the hands of a beneficiary of a deceased estate.
Item 1 of the table includes that where a CGT asset the deceased acquired on or after 20 September 1985, the first element of your cost base, or reduced cost base, of that interest will be the deceased's cost base of the asset on the day they died.
Item 3 of the table includes that where a dwelling that was the deceased's main residence just before they died, and was not then being used for the purpose of producing assessable income, the first element of your cost base, or reduced cost base of that interest will be the market value of the dwelling on the deceased's date of death.
Item 4 of the table includes that where a CGT asset the deceased acquired before 20 September 1985, the first element of your cost base, or reduced cost base, of that interest will be the market value of the dwelling on the deceased's date of death.
Subsection 118-195(1) of the ITAA 1997 states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if:
• The property was acquired by the deceased on or after 20 September 1985 and the property was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income; or the property was acquired by the deceased before 20 September 1985; and
• your ownership interest ends within two years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
The Commissioner can exercise his discretion in situations such as where:
• the ownership of a dwelling or a will is challenged;
• the complexity of a deceased estate delays the completion of administration of the estate;
• a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury); or
• settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control
In this case, when B passed away in 201X, you acquired the property, as the beneficiaries of the estate.
Main residence
The property was disposed of outside the two year time frame, and you have not provided a valid reason for the Commissioner to extend this time frame, therefore you are each taken to have acquired your share of the main residence at the market value on the date of the deceased's death.
Shop premises
You will each have two interests in the shop premises, a pre-CGT interest and a post-CGT interest. You will have acquired the pre-CGT interest at the market value at the deceased's date of death, and the post-CGT interest at the deceased's cost base at date of death.