Edited version of private advice

Authorisation Number: 1052035382404

Date of advice: 27 September 2022

Ruling

Subject: CGT - deceased estates

Question

Is the first element of the cost base of the Property the market value at the date of death of Person B?

Answer

Yes

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 acquired a property prior to 20 September 1989.

Their spouse Person B lived with them at the Property from the time of acquisition until Person B entered high-level aged care accommodation.

On moving into high-level aged care accommodation, Person B continued to treat the Property as their main residence in accordance with section 118-170 of the Income Tax Assessment Act 1997.

The aged care accommodation provider made an application to the relevant body for a health order. This order was granted for Person B's children.

Financial orders were also made which granted responsibility for Person B's financial affairs to the relevant state body.

Person A and Person B's child, Person C was appointed private financial manager for Person B.

Person A died several years ago.

Person C continued to occupy the Property following the death of their parent Person A while assisting with the care of their other parent, Person B.

On the death of Person A, Person B acquired a 100% ownership interest in the Property.

The Trustee for Person B's Estate has made the decision to exercise the absence choice in section 118-145 of the Income Tax Assessment Act 1997 from the time of the death of Person A.

Person B died last year.

The Trustee for Person B's Estate will sell the Property within six months of this ruling being issued.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-170

Income Tax Assessment Act 1997 section 128-15

Reasons for decision

Is the first element of the cost base of the property at XXX (the Property) the market value at the date of Person B's death?

Summary

Yes. As the conditions in section 128-15 of the Income Tax Assessment Act 1997 (ITAA 1997) are met, the first element of the cost base of the Property on disposal will be the market value at the date of Person B's death.

Detailed reasoning

Special rule for legal personal representative

Section 128-15 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens if a capital gains tax (CGT) asset you owned just before dying:

(a)  devolves to your legal personal representative; or

(b)  passes to a beneficiary in your estate

Section 128-15 of the ITAA 1997 provides that the legal personal representative, or beneficiary, is taken to have acquired the relevant capital gains tax (CGT) asset at the date of your death.

Cost base rules for legal personal representatives or beneficiaries

In the hands of the legal personal representative or beneficiary, the first element of the cost base of a dwelling that was the deceased's main residence just before they died will be the market value at date of death if:

(a)  the dwelling was not then being used for the purpose of producing assessable income; and

(b)  they were not then an excluded foreign resident.

Application to your circumstances

Person B acquired their ownership interest in the Property on the death of Person A. Prior to this date, Person B occupied the Property as their main residence as the spouse of Person A.

At the date of Person B's death, the Property was their main residence. Therefore, the first element of the cost base of the Property will be the market value of the Property at the date of Person B's death.