Private ruling: CGT - deceased estates
Date of advice: 22 February 2024
Published: 27 October 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will CGT event A1 occur when legal title to the Property A is transferred to Person A? | A1: Yes. | Q2: Will CGT event A1 occur when legal title to Property B is transferred to Person B? | A2: Yes. | Q3: Will the trustee be assessed on any capital gain or capital loss resulting from the transfer of legal title for Property A property to Person A? | A3: Yes. | Q4: Will the trustee be assessed on any capital gain or capital loss resulting from the transfer of legal title for Property B to Person B? | A4: Yes. | Q5: What is the cost base for Property A? | A5: The cost base of Property A is its market value on DD MM YYYY, as it was the deceased's main residence and not income-producing at the time of death, in accordance with subsection 128-15(4), item 3 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q6: What is the cost base for the Property B? | A6: The cost base of Property B is the deceased's cost base as at the date of death, as the property was acquired after 20 September 1985 and does not meet the conditions for a market value reset under subsection 128-15(4), item 1 of the ITAA 1997.

Relevant facts and circumstances: On DD MM YYYY, the deceased died. The deceased was survived by their three children, Person A, Person B and Person C. The deceased's will, dated DD MM YYYY, directed that the residuary of their estate be distributed equally among their three children as tenants in common. On DD MM YYYY, Probate of the will was granted by the Supreme Court to Person C as one of the executors. At date of death, the deceased owned the following assets: • Property A - The property was the deceased's main residence and it was not income producing at his date of death • Property B - The deceased acquired this property with their spouse, Person D on DD MM YYYY - Person D died on DD MM YYYY and the property passed to the deceased under the terms of the will - The property was not used by the deceased as their main residence • Approximately $XX in cash. On DD MM YYYY, Person A issued proceedings in the Supreme Court seeking an order for further provision. On DD MM YYYY, Person B also joined in the court proceedings. On DD MM YYYY, the parties participated in mediation however, they were not able to resolve the matter. On DD MM YYYY, the parties participated in a further mediation, during which an agreement was reached. To formalise the outcome, the parties signed a Heads of Agreement at the mediation. On DD MM YYYY, a Court Order was issued by the Supreme Court to give effect to the Heads of Agreement. Under the Court Order the deceased's estate was to be divided as follows: • The executor to transfer the Property A property to Person A • The executor to transfer the Property B property to Person B • The executor to pay Person C $XX from the estate • The residuary of the estate to be divided equally between Person A and Person B. Separately, outside the estate assets, the Court ordered the relevant parties to make the following payments: • Person A to pay Person C $XX by DD MM YYYY • Person B to pay Person C $XX by DD MM YYYY

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 108-5(1) | Income Tax Assessment Act 1997 section104-10 | Income Tax Assessment Act 1997 section 128-15 | Income Tax Assessment Act 1997 subsection 128-15(3) | Income Tax Assessment Act 1997 subsection 128-20(1) | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 subsection 128-15(4), Item 3 | Income Tax Assessment Act 1997 subsection 128-15(4), Item 1

Reasons for decision: Detailed Reasoning - Question 1 & 2: A capital gain or loss may arise when a Capital Gains Tax (CGT) event occurs in relation to a CGT asset. Division 108 of the ITAA 1997 outlines what constitutes a CGT asset. Specifically, section 108-5(1) defines a CGT asset as: (a) any kind of property; or (b) a legal or equitable right that is not property. In your circumstances, both Property A and Property B fall within the definition of section 108-5(1) of the ITAA 1997 and are considered CGT assets. Section 104-10 of the ITAA 1997 outlines the operation of CGT event A1, which occurs when a person disposes of a CGT asset. A disposal takes place when ownership of the asset changes. If the disposal is made under a contract, the CGT event happens at the time the contract is entered into. If there is no contract, the event occurs when the change of ownership actually takes place. | Detailed Reasoning - Application to your circumstances: Transferring legal title for both Property A and Property B changes ownership of each asset. Since both properties meet the definition of a CGT asset under section 108-5(1) of ITAA 1997, each transfer constitutes a disposal that triggers CGT event A1 at the time of the ownership change. | Detailed Reasoning - Question 3 & 4: Division 128 of the ITAA 1997 operates when a CGT asset owned by a person just before death passes to the deceased's legal personal representative (LPR) or to a beneficiary in the deceased's estate (section 128-15 of the ITAA 1997). Any capital gain or loss made by the trustee when the asset passes to a beneficiary of the deceased estate is disregarded under section 128-15(3) of the ITAA 1997. Section 128-20(1) of the ITAA 1997 states that a CGT asset passes to a beneficiary of a deceased estate when the beneficiary acquires ownership of the asset in any of the following ways: (a) under a will of the deceased, or that will as varied by a court order; (b) by operation of an intestacy law, or such a law as varied by a court order; (c) because it is appropriated to the beneficiary by the deceased's legal personal representative in satisfaction of a pecuniary legacy or some other interest or share in the deceased's estate; or (d) under a deed of arrangement if: (i) the beneficiary entered into the deed to settle a claim to participate in the distribution of the deceased's estate; and (ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of the deceased's estate (section 128-20(1) of the ITAA 1997). It does not matter whether the asset is transmitted directly to the beneficiary or is transferred to the beneficiary by the deceased's LPR. Similarly, section 128-15(3) of the ITAA 1997, states when an asset of the deceased is transferred from the LPR to a beneficiary, any capital gain or loss made by the LPR is disregarded. While a capital gains event occurs technically, it is does not give rise to the CGT. In considering this exemption, the asset that is transferred must be an asset of the deceased. It: • cannot be an asset that the LPR has acquired after death • the LPR cannot acquire an asset during the estate administration process and then subsequently transfer the asset to a beneficiary without triggering CGT • during estate administration process the property cannot be strata titled, subdivided or improved. • the asset must pass to the beneficiary in their capacity as a beneficiary. If the beneficiary buys an asset from the estate (which is a common occurrence), CGT applies. While CGT does not apply when the beneficiaries acquire the asset, it may apply if they later dispose of the asset. | Detailed Reasoning - Application to your circumstances: In your circumstances, Property A was transferred to Person A and Property B to Person B by the trustee acting as the LPR of the deceased estate. As both properties were owned by the deceased immediately before death and passed to the beneficiaries in their capacity as beneficiaries, Division 128 of the ITAA 1997 applies. Under sections 128-15(3) and 128-20(1), any capital gain or loss arising from the transfer of legal title is disregarded. Accordingly, the trustee is not subject to capital gains tax on either transfer. | Summary: Section 110-25 of the ITAA 1997 sets out the general rules of cost base. The cost base of a CGT asset consists of five elements. 1. The total of any money you have paid to acquire the asset; 2. The incidental costs incurred in acquiring the asset (such as stamp duty and brokerage fees); 3. Non-capital costs of ownership (such as interest and costs of maintaining the asset etc); 4. Capital expenditure incurred to increase or preserve the asset's value; and 5. Any costs incurred to establish, preserve or defend your title to the asset. Where a dwelling passes to a LPR or beneficiary following the death of an individual, subsection 128-15(4), item 3 of ITAA 1997 applies to determine the first element of the cost base and reduced cost base of the asset. This provision applies where: • the dwelling was the deceased's main residence just before their death; and • the dwelling was not being used to produce assessable income at that time. Where these conditions are satisfied, the first element of the cost base and reduced cost base of the dwelling is taken to be its market value at the date of the deceased's death. This rule ensures that, for CGT purposes, the beneficiary or LPR is treated as having acquired the asset at its market value, rather than inheriting the deceased's original cost base. | Detailed Reasoning - Application to your circumstances: As Property A was the deceased's main residence and not income-producing at the time of death (DD MM YYYY), the first element of its cost base and reduced cost base is its market value on that date, in accordance with subsection 128-15(4), item 3. | Summary: When a person dies, and a CGT asset they owned passes to a LPR or beneficiary, item 1 of subsection 128-15(4) ITAA 1997 applies if the asset was acquired by the deceased on or after 20 September 1985 and is not covered by items 2, 3, 3A or 3B. In this case, the first element of the cost base and reduced cost base of the asset in the hands of the LPR or beneficiary is the cost base of the asset on the day the deceased died. This provision ensures that the inheritor steps into the deceased's position for CGT purposes, using the asset's existing cost base at the date of death rather than resetting it to market value. | Detailed Reasoning - Application to your circumstances: In your case, Property B was acquired by the deceased in YYYY and was used as an investment property. It was not the deceased's main residence at the time of death. Legal title to the property was transferred to the beneficiary via a court order. As the property was acquired by the deceased after 20 September 1985 and does not meet the conditions for any of the exceptions listed in items 2, 3, 3A or 3B, item 1 applies. Accordingly, the first element of the cost base and reduced cost base of Property B in the hands of the beneficiary is the deceased's cost base as at the date of death.