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Edited version of your written advice
Authorisation Number: 1051189770940
Date of advice: 14 February 2017
Ruling
Subject: Capital Gains Tax - Deceased Estate
Question
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 parents death?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 20YY
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Your parent's main residence was purchased.
Your parent passed away.
The main residence was passed to you in their will.
After probate you took possession of the house.
This property is not your primary place of residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 128-15 (4)
Reasons for decision
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).
Therefore, in your case you acquired the property.
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.
Other Information
As you have owned the property for more than 12 months, you will be entitled to a 50% discount on any capital gain made.
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.
Please note, there may be other costs/elements that form part of the cost base of the property.
For more information about how to work out a capital loss, please refer to the Guide to capital gains tax 2016, available at www.ato.gov.au.