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Edited version of private advice
Authorisation Number: 1051897740261
Date of advice: 10 September 2021
Ruling
Subject: CGT - deceased estate
Question
Is the first element of the cost base of the inherited dwelling the market value of the dwelling on the date of death of the deceased?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
2 June 20XX
Relevant facts and circumstances
Your parent (the deceased) acquired a property in before 20 September 1985 (the dwelling).
It was the deceased's main residence at the time of their death on X June 20XX.
You, being the child of the deceased, inherited the dwelling.
The deceased's will contained a lifetime occupancy provision for their spouse.
Their spouse remained living in the dwelling until their death on X January 20XX.
You sold the dwelling a few years later.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 128-15 (4)
Reasons for decision
The cost base of a capital gains tax asset (CGT) asset is generally the cost of the asset when you bought it, plus certain other costs associated with acquiring, holding and disposing of the asset.
If you inherit a dwelling there are special rules for calculating your cost base.
The first element of the cost base or reduced cost base of a dwelling, is its market value at the date of death if any of the following apply:
• the dwelling was acquired by the deceased before 20 September 1985
• the dwelling passed to you after 20 August 1996 (but not as a joint tenant), and just before the deceased died it was their main residence and was not being used to produce income, or
• the dwelling passed to you as the trustee of a special disability trust.
In your case, you inherited a dwelling from your parent upon their death. Your parent acquired the dwelling before 20 September 1985. As such, the cost base of the dwelling is the market value of the dwelling at your parent's date of death.
Although their spouse's use of the dwelling will be taken into account when calculating a main residence exemption, because the spouse did not own the dwelling their use of it is not taken into account when calculating the cost base.