Private ruling: Capital gains tax - Deceased estate - Cost base - Main residence - Vacant land greater than 2 hectares
Published: August 2013
Ruling period: Year ended 30 June 2013.
Date scheme commenced: 1 July 2011.

Ruling: Q1: Is the first element of the cost base of the 'vacant land block' the market value as at the date of death of the parent sometime after 20 September 1985? | A1: Yes. | Q2: Is the first element of the cost base of the 'main residence and surrounding five acres that is contained in the bigger block' the market value as at the last deceased's date of death? | A2: Yes. | Q3: Is the first element of the cost base of the 'remaining acres of the bigger block' the market value as at the date of death of the parent sometime after 20 September 1985? | A3: Yes.

Relevant facts and circumstances: Sometime well before 20 September 1985 the parent acquired two properties, (one property was a vacant block of land and the other property was bigger with a dwelling on it) from their parent in law. The acquisition of these two properties by the parent happened after their then spouse had passed away. The parent passed away sometime after 20 September 1985 and their adult child inherited the two properties. The adult child had inherited their parent's pre-CGT assets. The adult child lived in the dwelling located on the bigger block as their main residence from at least the time they acquired the property, until their date of death. The adult child bequeathed the two properties that they had inherited from their parent to his/her step sibling. The step sibling lived in the dwelling located on the bigger block as his/her main residence from at least the date of their parent's death until their date of death. The step sibling did not use either of the two properties for income producing purposes. You as trustee for the estate of the late step sibling have acquired the two properties as at the step sibling's date of death. You have then sold both of the properties during the year ended 30 June 2013. The following documents are to be read with and form part of the scheme for the purposes of this private binding ruling: · Private binding ruling application for The Trustee for the Estate of the Late Step Sibling signed and dated by the Executor; · Facsimile from the Executor sent to the Australian Taxation Office (ATO) providing further information, including a copy of the Will of the Step Sibling; · Private Binding Ruling issued by the ATO for the Estate of the Late Step Sibling; · Correspondence from the Executor for the Estate of the Step Sibling requesting further information about questions not answered in the Private Binding Ruling previously issued by the ATO. · Correspondence dated 15 July 2013 titled 'Objection to Private Ruling written by your tax agent and then authorised by you that your tax agent had prepared and submitted the document on your behalf as Executor for the Estate of the Late Step Sibling. · Facsimile from the Executor of the Estate of the Late Step Sibling dated 8 August 2013 specifically requesting clarification of the question about cost base.

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 128-15, and | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Summary: The first element of the cost base of the 'vacant land block' is the market value as at the date of death of the parent sometime after 20 September 1985. The first element of the cost base of the 'main residence and surrounding X acres that is contained in the bigger block' is the market value as at the last deceased's date of death. The first element of the cost base of the 'remaining acres of the bigger block' is the market value as at the date of death of the parent sometime after 20 September 1985. | Detailed Reasoning - Detailed reasoning: You as the trustee for the Estate of the Late step sibling, (the legal personal representative) have acquired the two properties as at the step sibling's date of death. In regard to the first element of the cost base, two different rules apply, one rule applies for a CGT asset that is a main residence dwelling and has not been used to produce income; and the other rule applies to CGT assets that are acquired on or after 20 September 1985. | Detailed Reasoning - Main residence and surrounding five acres contained in the bigger block: Sub-section 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997), item 3 of the table states that the first element of the cost base of a dwelling that was the main residence of the deceased just before they died and was not used to produce income is the market value of the dwelling on the date of death. This means that for you the first element of the cost base of the 'main residence and surrounding five acres contained in the bigger block' is the market value as at step sibling's date of death. | Detailed Reasoning - Vacant land block and remaining acres of the bigger block: Sub-section 128-15(4) of the ITAA 1997, item 1 of the table states that the first element of the cost base of a CGT asset that you acquire on or after 20 September 1985 is the deceased's cost base. For you, the first element of the cost base of the 'vacant land block' and the 'remaining acres of the bigger block' is the step sibling's cost base. The step sibling's first element of the cost base would have been the adult child's cost base (because the step sibling acquired the 'vacant land block' and the 'remaining acres of the bigger block' after 20 September 1985. The adult child's fist element of the cost base of the 'vacant land block' and the 'remaining acres of the bigger block', is prescribed by item 4 of the table contained in sub-section 128-15(4) of the ITAA 1997, because the adult child inherited a pre CGT asset from their parent. Therefore the adult child's cost base for the CGT assets known as the 'vacant land block' and the 'remaining acres of the bigger block' was the market value as at their parent's date of death sometime after 20 September 1985. As a result of the chain of deceased estates, your cost base for the two CGT assets known as the 'vacant land block' and the 'remaining acres of the bigger block', is the step sibling's cost base, which was the adult child's cost base which was the market value as at the date of the parent's death sometime after 20 September 1985.