Edited version of private advice

Authorisation Number: 1052007555093

Date of advice: 15 July 2022

Ruling

Subject: Capital gains tax

Question 1

Following the subdivision after XXXX of the Original Property, which was acquired before XXXX, were the new assets created considered to have been acquired before XX XXXXXXXXX XXXX?

Answer

Yes.

The subdivision of the Original Property means that for capital gains tax (CGT) purposes, the original CGT asset will be split into new assets. However, subdividing the Original Property does not itself give rise to a CGT event, as per subsection 112-25(2) of the Income Tax Assessment Act 1997 (ITAA 1997). Therefore, there will be no CGT implications as the ownership interest stayed the same.

Question 2

Are you taken to have acquired the New Property in the 20XX income year?

Answer

Yes.

XXX acquired the asset in XXXX capacity as the legal personal representative (LPR) of the deceased Person A. Although legal title was not transferred to XXX, under subsection 128-15(2) of the ITAA 1997 XXX are taken to have acquired the asset on the deceased's date of death. The deceased's date of death is in the 20XX income year, which is after the introduction of CGT on XX XXXXXXXXX XXXX (post-CGT). Therefore, the new property is a post-CGT asset and when the property is sold any capital gain or loss will not be disregarded under subsection 104-10(5) (about assets acquired before XX XXXXXXXXX XXXX).

Question 3

Is the first element of the cost base or reduced cost base of Person A's original interest in the New Property acquired before XXXX, in XXXX hands as their LPR, the market value of that interest on the date of death of the deceased?

Answer

Yes.

Section 128-15 of the ITAA 1997 sets out the treatment of a CGT asset held by a deceased person just before their death. Where the CGT asset was acquired by the deceased before XX XXXXXXXXX XXXX, the first element of the cost base (and reduced cost base) of the CGT asset in the hands of the LPR is the market value of the asset on the date of death of the deceased.

In XXXX case, Person A's original interest in the New Property was acquired prior to XX XXXXXXXXX XXXX. The first element of the cost base, of the original interest in the New Property, is its market value on the deceased's date of death.

Question 4

Is the first element of the cost base or reduced cost base of Person A's second interest in the New Property acquired on the death of Person B on XX XXXXXXXXX XXXX, in XXXX hands as the LPR, the market value of that interest on the date of Person B's death?

Answer

Yes.

Section 128-15 of the ITAA 1997 sets out the treatment of a CGT asset held by a deceased person just before their death. Where the CGT asset was acquired by the deceased after XX XXXXXXXXX XXXX, the first element of the cost base (and reduced cost base) of the CGT asset in the hands of the LPR is the cost base of the asset on the date of death of the deceased.

In your case, Person A's second interest in the New Property was acquired through joint tenancy survivorship. Therefore, as it was acquired through survivorship and Person B originally acquired their interest in the CGT asset before XX XXXXXXXXX XXXX, the first element of the cost base (and reduced cost base) of the CGT asset in the hands of Person A is the market value of the asset on the day of Person B's passing (subsection 128-50(4) of the ITAA 1997). Hence, the first element of the cost base, of the second interest in the New Property, is its market value on Person B's date of death.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A and Person B purchased the Original Property before XXXX.

The Original Property was XX acres in size and had a dwelling situated on it.

Before XXXX the Original Property was approved to be subdivided into smaller lots.

The subdivision title is dated after XXXX.

The lot with the original dwelling situated on it became known as the New Property.

The New Property is a half-acre block.

Person B passed away after XXXX.

Upon Person B's passing, Person A acquired Person B's interest in the New Property through survivorship.

The New Property was never used for income producing purposes.

The New Property was not the main residence of Person A.

Person A passed away in the 20XX income year.

The New Property was listed for sale.

A contract for sale, for the New Property, was entered into with settlement occurring in the 20XX income year.

Relevant legislative provisions

Subsection 104-10(5) of the Income Tax Assessment Act 1997

Subsection 112-25(2) of the Income Tax Assessment Act 1997

Section 128-15 of the Income Tax Assessment Act 1997

Subsection 128-50(4) of the Income Tax Assessment Act 1997