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Edited version of private advice
Authorisation Number: 1052150585189
Date of advice: 1 August 2023
Ruling
Subject: CGT - deceased estate
Question
For capital gains tax (CGT) purposes, is the property considered to have been acquired by the deceased before 20 September 1985?
Answer
Yes.
The rules regarding the time of acquisition of a CGT asset are contained in Division 109 of the Income Tax Assessment Act 1997 (ITAA 1997).
Subsection 109-5(2) of the ITAA 1997 states that where an entity disposes of a CGT asset to you under a contract, you are considered to acquire the CGT asset when the contract is entered into.
In this case the property was disposed of by the previous owner to the deceased under a contract that was entered into before 20 September 1985. Therefore, under subsection 109-5(2) of the ITAA 1997 the deceased is considered to have acquired the property before 20 September 1985.
Generally, land and any building on it is considered a single CGT asset. However, where the land was acquired pre-CGT and the building was constructed post-CGT, they may be deemed to be separate CGT assets under section 108-55 of the ITAA 1997.
Where there was a contract for the construction, the building will only be considered a separate CGT asset acquired post-CGT if the construction contract was entered into post-CGT (paragraph 108-55(2)(a) of the ITAA 1997).
In this case the contract that was entered into before 20 September 1985 was both for the purchase of the land and the construction of the building. Therefore, the building is not deemed to be a separate post-CGT asset by section 108-55 of the ITAA 1997.
Consequently, the outcome remains that the land and building is considered to be a single CGT asset that was acquired by the deceased before 20 September 1985.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The deceased signed a contract for the purchase of a 'being built 'property. The contract was for both the purchase of the land and the construction of the dwelling.
The deceased and the vendor both signed the contract several months before 20 September 1985.
The property title was registered after 20 September 1985.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 109-5(2)
Income Tax Assessment Act 1997 section 108-55