Edited version of private advice

Authorisation Number: 1052229415470

Date of advice: 5 March 2024

Ruling

Subject: Deceased estate - cost bases of pre and post-CGT assets

Question 1

Is the first element of the cost bases of partial interests in land Lots, acquired by the Estate, their market value at the date of death of the deceased, under subsection 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is the first element of the cost base of the partial interest in land Lots, acquired by the Estate, equal to the cost base of the deceased under subsection 128-15(4) of the ITAA 1997?

Answer

Yes

This ruling applies for the following period(s)

Year ending 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

1.            The deceased died on XX/X/20XX.

2.            At the time of death, the deceased held Lots of land.

3.            The deceased is a party to a draft Subdivision Deed (Subdivision Deed), dated on XX/XX/19XX.

4.            The Subdivision Deed sets out the circumstances surrounding the acquisition of the Lots by the deceased. A clause in the Subdivision Deed shows the deceased had previously acquired a partial interest in several lots. These acquisitions were a result of the deceased being a beneficiary of the deceased estates of a number of related individuals who all died prior to 20 September 1985.

5.            The values of each of the Lots was agreed by the parties based on their own valuations, planning and financial advice, obtained just prior to signing the Subdivision Deed on XX/XX/19XX. The Lots were assigned market values in the Subdivision Deed.

6.            The Subdivision Deed provides that in consideration for the deceased relinquishing their interests in certain Lots, they would acquire the remaining interest of various other Lots. In addition, due to the inequality on the appropriation of the Lots to the ultimate beneficiaries, a clause provided that the deceased was to make a balancing payment to another party to the Subdivision Deed.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 subsection 128-15(2)

Income Tax Assessment Act 1997 subsection 128-15(4)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

All legislative references are to the ITAA 1997 unless otherwise stated.

Question 1

Is the first element of the cost bases of partial interests in land Lots, acquired by the Estate, their market value at the date of death of the deceased, under subsection 128-15(4)?

Summary

The first element of the cost base of the Trustee of the Estate of the deceased's partial interest in the Lots is their market value on 20XX.

Detailed reasoning

1.            Section 128-15 sets out what happens to a CGT asset that a deceased taxpayer owned just before their death that devolves to their legal personal representative (LPR) or passes to a beneficiary in their estate.

2.            The term 'legal personal representative' is defined in subsection 995-1(1) and includes an executor or administrator of an estate of an individual who has died.

3.            Subsection 128-15(2) provides that the LPR is taken to have acquired the asset on the day the deceased died.

4.            In this case, the deceased died in 20XX. The executor for the Estate is the LPR. In accordance with subsection 128-15(2), as the deceased died on XX/XX/20XX, this will be the date the Lots are taken to be acquired by the LPR.

5.            The table in subsection 128-15(4) sets out the modifications to the cost base and reduced cost base of the CGT asset in the hands of the LPR or beneficiary. Item 4 of the table in subsection 128-15(4) provides that where the deceased acquired the asset before 20 September 1985, the first element of the LPR's cost base is the market value of the asset on the day the deceased died.

6.            The deceased acquired a partial interest in the Lots prior to 20 September 1985. The cost base to the LPR of these interests is therefore their market value in XX/XX/20XX, which is the day the deceased died.

Question 2

Is the first element of the cost base of the partial interest in the Lots, acquired by the Estate, equal to the cost base of the deceased under subsection 128-15(4)?

Summary

The first element of the cost base of the Trustee of the Estate's partial interest in the Lots is the cost base of the Lots to the deceased on XX/XX/20XX.

Detailed reasoning

7.            Item 1 of the table in subsection 128-15(4) provides that where the deceased acquired the CGT asset on or after 20 September 1985, the first element of the LPR's cost base is the deceased's cost base for the CGT asset on the day they died, unless the CGT asset is one covered by item 2, 3, 3A or 3B of the table in subsection 128-15(4). In this case, the Lots are not covered by these items.

8.            According to the Subdivision Deed, the deceased acquired a partial interest in the Lots on XX/XX/19XX. Due to the inequality on the appropriation of the Lots to the ultimate beneficiaries, a clause in the Subdivision Deed provided that the deceased was to make a payment to another party to the Subdivision Deed.

9.            As the deceased acquired a partial interest in the Lots on or after 20 September 1985, the first element of the cost bases for the Lots to the LPR is the cost bases for the Lots of the deceased's determined at the date of death.