Private ruling: Capital gains tax
Published: May 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Did you acquire your ownership interest in the property as at the date of death of the deceased? | Yes.

Relevant facts and circumstances: Your parent (the deceased) executed a 'Deed of Gift' (the deed) which provided that their place of residence (the dwelling) would be gifted to you and your siblings upon the death of the deceased. The deed also granted the partner of the deceased a right to occupy the dwelling rent free for a period of time commencing on the date of death of the deceased. The deceased passed away some years after executing the deed. The title to the dwelling was transferred into the names of you and your siblings approximately seven months after the date of death. The dwelling was occupied by the partner of the deceased for a period of time. Improvements were then made to the dwelling before it was rented out for 12 months. The dwelling was subsequently sold. You and your siblings lodged income tax returns for the relevant income year and included a capital gain based on your respective shares in the dwelling. The first element of the cost base used in the capital gains tax calculations was the value of the dwelling as at the date of execution of the deed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 112-20 | Income Tax Assessment Act 1997 Section 118-130

Reasons for decision: Summary: Section 118-130 of the ITAA provides that you have an ownership interest in a dwelling (that is not a flat or unit) if you have a legal or equitable interest in the land on which it is erected or a licence or right to occupy it. For a dwelling that you acquire under a purchase contract, you have an ownership interest in it from the time when you obtain legal ownership of it, or if the contract or related contract gives you a right to occupy it at an earlier time, the earlier time. Division 128 of the ITAA 1997 sets out what happens when an individual dies and a CGT asset owned by the individual just before dying devolves to the legal personal representative of the individual, or passes to a beneficiary of the estate. Section 128-15 of the ITAA 1997 provides that the legal personal representative, or beneficiary, is taken to have acquired the asset as at the date of death. However, section 128-15 of the ITAA 1997 only applies if the CGT asset devolves or passes under a will, an intestacy law or deed of arrangement relating to a deceased estate In your case, you acquired your ownership interest in the dwelling through a Deed of Gift drawn up by the deceased. The deed had the effect of dealing with the dwelling outside the will and estate of the deceased. The deed came into effect upon the death of the deceased and the title to the property was transferred into the names of you and your siblings some months later. Therefore, it is evident you did not acquire the dwelling under a purchase contract or as the legal personal representative of the deceased or as a beneficiary of the estate. However, it is also evident that the deed is a legally enforceable document or agreement that came into effect as at the date of death of the deceased. Although the partner of the deceased had a right to occupy the dwelling for a period of time, you still had a legal ownership interest in the dwelling from the date of death. Consequently, you are taken to have acquired your ownership interest in the dwelling as at the date of death of the deceased. You did not acquire your ownership interest in the dwelling when the deed was executed as there was no change in the legal or beneficial ownership interest at that time. As you acquired your ownership interest in the dwelling for no expenditure, the market value substitution rule applies so that the first element of the cost base of the dwelling is taken to be the market value of the dwelling as at the date of acquisition.