Private ruling: Capital gains tax
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer: | Can you use the retrospective market valuation of the property in calculating the first element of the cost base for capital gains tax (CGT) purposes? | Yes.

Relevant facts and circumstances: You inherited an ownership interest in a property after 20 September 1985. The deceased purchased the property prior to 20 September 1985. The value of the property as at the date of death was listed as $X in the inventory of assets and liabilities relating to the grant of probate of the will. The value of the property as at the date of death was based on your estimate. You did not obtain an independent valuation of the property at the time. The property was your main residence until the dwelling was removed from the property. The property has been compulsorily acquired by a local authority. You recently obtained a retrospective valuation of the property, as at the date of death of the deceased, from an independent certified practising valuer. The retrospective valuation of the property was higher than your original estimate.

Relevant legislative provisions: Income Tax Assessment Act 1997- Subsection 128-15(2) | Income Tax Assessment Act 1997- Subsection 128-15(4)

Reasons for decision: Summary: Subsection 128-15(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where an asset that belonged to the deceased passes to a beneficiary of the estate, the beneficiary is taken to have acquired the asset on the date of death. Subsection 128-15(4) of the ITAA 1997 provides that where a CGT asset was acquired before 20 September 1985, the first element of the asset's cost base is the market value of the asset on the date of death of the deceased. In your case, you inherited a property and estimated its value as being $X. You did not obtain an independent valuation at the time. You subsequently obtained a retrospective valuation of the property, as at the date of death of the deceased, which was for a higher amount than your original estimate. Guidance on what constitutes an acceptable market valuation for tax purposes can be found under Market valuation for tax purposes in the Capital gains tax section of the ATO website, www.ato.gov.au. Depending on the situation, the ATO may accept a market valuation from a person without formal valuation qualifications whose assessment is based on reasonably objective and supportable data. However, except for the most straightforward valuation processes, valuations undertaken by persons experienced in their field of valuation would be expected to provide more reliable values than those provided by non-experts. At a minimum, any valuation relied upon should be documented and explained well enough that another person or valuer can understand how the value was determined. It should objectively demonstrate the valuation process undertaken in accordance with valuation industry practices. To ensure the objectivity of the report, the valuer should be independent of the interests of the party commissioning the report. You have supplied a comprehensive valuation report prepared by an independent 'Certified practising valuer' that adequately documents how the valuation amount was arrived at. Therefore, you can use the retrospective market valuation in calculating the first element of the cost base for CGT purposes.