Private ruling: CGT - disposal - different ownership interests
Published: August 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will there be a capital gains tax (CGT) consequence on the disposal of the property in relation to the interest in the property you acquired from the deceased individual? | A1: Yes

Relevant facts and circumstances: You and another individual acquired a property in 20XX as joint a tenant, which was used to produce assessable income. The other individual passed away in 20XX, at which time the other individual's ownership interest passed to you as joint tenant. You sold the property in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 128 | Income Tax Assessment Act 1997 section 128-50 | Income Tax Assessment Act 1997 subsection 128-15(5)

Reasons for decision: Summary: Section 128-50 of the Income Tax Assessment Act (ITAA 1997) provides that if you own interests a dwelling as joint tenants and the one joint tenant dies, on that date their interest in the asset is taken to pass in equal shares to you and any other surviving joint tenants, as if their interest is an asset of their deceased estate and you are beneficiaries. Under Division 128 of the ITAA 1997 when a person dies a capital gain or capital loss from a capital gains tax (CGT) event that results from a CGT asset the person owned just before dying is disregarded. Any subsequent disposal by the surviving joint tenant is a CGT event which will result in a capital gain or loss. In accordance with subsection 128-50(3) of the ITAA 1997, if the individual who died acquired his or her interest in the asset on or after 20 September 1985, the first element of the cost base of the interest each survivor is taken to have acquired is: Cost base of the interest of the individual who died (worked out on the day the individual died) Number of survivors In your case, you are taken to have acquired the other individual's ownership interest in the property on the date of their death. As you are the only surviving joint tenant, the first element of the property's cost base will be the other individual's cost base on the day they died. Any capital gain or capital loss made when the asset passed to you as the surviving joint tenant is disregarded. On the subsequent disposal of the property, CGT event A1 will trigger which will result in a capital gain or capital loss. The property will be considered to be two separate CGT assets with potentially differing cost bases. One being your existing ownership interest and the other being the ownership interest acquired from the other individual. The first element of cost base of the ownership interest acquired from the other individual will be their cost base on the day of their death. | Detailed Reasoning - Further issues for you to consider: The 50% discount, available under Division 115 of the (ITAA 1997), will generally not be available if ownership of an asset is not at least twelve months, prior to its disposal (section 115-25 of the ITAA 1997). Section 115-30 of the ITAA 1997 however, applies special rules about the time of acquisition. Item 7 in section 115-30 of the ITAA 1997 provides that the acquisition date for an asset acquired as a surviving joint tenant will be when the deceased acquired the asset. In your case, for the purposes of applying the 50% discount, it is considered that you acquired the deceased's ownership interest in the property on the day the deceased acquired their ownership interest in the property. As the deceased acquired their ownership interest over 12 months prior to disposal of the asset, you will be entitled to apply the 50% discount to any capital gain made on disposal.