Private ruling: Cost base
Published: March 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Under subsection 128-15(4) of the Income Tax Assessment Act 1997 , is the first element of the property's cost base, and reduced cost base, the market value of the property on the date of the deceased's death? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You inherited a property from the deceased who passed away during the 200X financial year. You were the executor and trustee of the estate. The deceased purchased the property after 20 September 1985. The property was the deceased's main residence and was not used to produce assessable income. Under the terms of the Will, the other beneficiaries were entitled to $X each as their share of the inheritance. The will provided that the trustee may borrow against any assets forming part of the estate in order to give effect to the provisions made to the other beneficiaries. After the payments to the other beneficiaries, you then inherited the balance of the estate which included the property. The property was rented from the 200Y financial year until the end of 20XX. The property was then sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 128-15. | Income Tax Assessment Act 1997 Section 128-20.

Reasons for decision: Summary: Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out what happens if a capital gains tax (CGT) asset passed to you as a beneficiary of a deceased estate. Where a CGT asset passes to a beneficiary in a deceased estate, the beneficiary is taken to have acquired the asset on the date of the deceased's death (section 128-15 of the ITAA 1997). Section 128-20 of the ITAA 1997 explains that a CGT asset passes to a beneficiary of a deceased estate if the beneficiary becomes the asset's owner because it is appropriated to the beneficiary by the deceased's legal personal representative (LPR), such as the executor of the estate, in satisfaction of some interest or share in the deceased estate. The deceased's will, allowed the executor to appropriate and partition estate assets towards payment of any beneficiaries entitlement in the estate. In this case, you raised the funds to pay the other beneficiaries an amount under the terms of the will in your capacity of trustee of the estate. You then inherited the balance of the estate, which was the property, in your capacity as a beneficiary to the estate. As such, under Division 128 of the ITAA 1997, the whole of the property passed to you as beneficiary of the deceased's estate and, for capital gains tax purposes, you are taken to have acquired the whole of the CGT asset on the date the deceased passed away. Subsection 128-15(4) of the ITAA 1997 provides a table which sets out modifications to the first element of the cost base and reduced cost base of a CGT asset in the hands of a beneficiary of a deceased estate. Item 3 of the table provides that the first element of the cost base and reduced cost base of a property that: • was the main residence of the deceased just before death, and • was not being used for the purpose of producing assessable income at that time, is the market value of the property on the date of the deceased's death. You advised the property was the deceased's main residence at the date of their death, and was not being used for the purpose of producing assessable income at that time. As such, the first element of the cost base and reduced cost base of the property in your hands is the market value of the property on the date the deceased passed away.