Private ruling: capital gains tax - inherited dwelling - acquisition date - disposal - cost base
Published: January 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1:  | A1:  | Q2:  | A2:  | Q3:  | A3:  | Q4:  | A4: 

Relevant facts and circumstances: You were bequeathed a dwelling under the will of the deceased. The deceased purchased the dwelling in 19XX, and from the date of acquisition you and your husband were allowed to live in the dwelling rent free up to the date of the deceased's death. The deceased passed away in 20XX. The deceased never resided in the dwelling. The title of the dwelling was transferred into your name in 2001. You disposed of the dwelling during 2010 and you made a capital gain from the disposal.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 118-200 | Income Tax Assessment Act 1997 Section 128-15

Reasons for decision: Summary: Capital gains tax (CGT) is the tax you pay when a CGT event happens to a CGT asset such as property. The most common CGT event is CGT event A1, which occurs when the ownership interest in a CGT asset is disposed of to another entity. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. As a beneficiary, when you sell an inherited property, the normal CGT rules apply. You are taken to have acquired the property on the date of death of the deceased. If the deceased person acquired the property on or after 20 September 1985, the first element of your cost base will be the deceased person's cost base on the day the person passes away. A beneficiary of a deceased estate disregards a capital gain when a CGT event happens to a dwelling acquired by the deceased person on or after 20 September 1985, that was the deceased's main residence just before they died, and was not being used for income producing purposes, if the ownership interest of the beneficiary ends within two years of the deceased's death. Alternatively, the exemption is available if the dwelling was, from the time of death until the ownership interest of the beneficiary ends, the main residence of: § The spouse of the deceased at the time of the death; or § Someone entitled to occupy the dwelling under the will. If the full exemption does not apply, the beneficiaries may be entitled to a partial exemption. The partial exemption is available if the taxpayer is an individual and the ownership in the dwelling has passed to the taxpayer as a beneficiary of a deceased estate. Generally, the partial exemption is calculated by working out the number of non-residence days as compared to the total ownership days that are relevant for main residence exemption purposes. The following formula is used to calculate the capital gain: Capital gain X Non-main residence days Total days In this situation, you were bequeathed a dwelling which had been acquired by the deceased after 20 September 1985. You are taken to have acquired the dwelling on the date the deceased passed away, which occurred after 20 September 1985. As your ownership interest in the property was acquired after 20 September 1985, the property is subject to CGT upon its disposal. The deceased never resided in the dwelling before they passed away and you did not dispose of your ownership interest in the dwelling within two years of the deceased's date of death. As this situation does not meet the necessary conditions you will not be entitled to a full exemption on any capital gain made from the disposal of your ownership interest in the dwelling. However, you will be eligible for a partial exemption on the disposal of the dwelling. When applying the above formula to your particular circumstances to calculate any capital gain made on the disposal of the dwelling, the non-main residence days and the total days will be calculated as follows: Non-main residence days are the number of days in the deceased's period of ownership when the dwelling was not their main residence. In this case, the dwelling was not the deceased's main residence from the date it was acquired until the deceased passed away. Total days are the number of days from the date the deceased acquired the dwelling and the date your ownership interest in the dwelling ended. You will calculate the capital gain made on the disposal of the dwelling by reducing the capital proceeds received from the disposal of the dwelling by the cost base of the dwelling. The first element of the cost base of the dwelling is the deceased's cost base on the date they passed away. As the deceased acquired the dwelling before 20 August 1991, third element costs such as land tax cannot be included in the deceased's cost base, and thus the first element of your cost base, when you are calculating the capital gain made on the disposal of the dwelling. However, any third element costs that you have incurred in relation to the dwelling, such as rates, can be included in the third element of your cost base of the dwelling when calculating the capital gain made from the disposal of the dwelling.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: capital gains tax - inherited dwelling - acquisition date - disposal - cost base: Question 1: Will there be any capital gain tax implications in relation to the inherited dwelling you acquired after 20 September 1985? | Question 2: Will the date you acquired the inherited dwelling be the date the deceased passed away? | Question 3: Will the first element of the cost base be the market value of the dwelling on the date the title was transferred into your name? | Question 4: Are the third element costs you incurred included in the cost base when calculating the capital gain made from the disposal of the dwelling?