Private ruling: Capital gains tax - deceased estate - disposal of dwelling - cost base
Published: September 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are your calculations on the disposal of the deceased's main residence correct? | A1: No. | Q2: Is the first element of the property's cost base its market value at the time it was first rented out? | A2: 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. After 20 September 1985, your parent (the deceased) acquired a property for $X. The property was their main residence until they died. You and your sibling are the beneficiaries of the deceased estate, with each inheriting an equal share. The same year the property was valued by one real estate agency $X to $X. The property was valued by another real estate agency at $X to $X. For a period of approximately 20 months the property was vacant. For a period of 18 months the property was rented out while probate and the estate affairs were put into order. For a period of 10 months the property was vacant. Various enhancements were made to the property. Just recently settlement occurred on the disposal of the property. The property was disposed of for $1X. You have calculated a capital loss on the disposal of the property. You will include this capital loss in the relevant income tax return. You have supplied copies of documentation to support your application and this documentation is to be read with and forms part of your application for the purpose of this ruling.

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 118-192. | Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. The most common capital gains tax (CGT) event, CGT event A1 occurs if you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract - when a change of ownership occurs. CGT event A1 occurred when you disposed of your interest in the property. | Detailed Reasoning - Inheriting a dwelling: If you inherit a deceased person's dwelling, you disregard any capital gain or capital loss that you make when a CGT event happens to the dwelling, or your ownership in the dwelling, if you meet certain conditions. A capital gain or capital loss is disregarded if you dispose of the dwelling or an interest in the dwelling within two years of the deceased's death and the dwelling (or interest in the dwelling) was: · acquired by the deceased prior to 20 September 1985; or · it was the deceased's residence when they died and was not being used to produce income when they died. In your case, the deceased passed away you inherited an interest in the property. You and your sibling started renting out it from a specified date. As you did not dispose of the property within two years of the deceased's death you are not entitled to a full exemption on the disposal of it. | Detailed Reasoning - Using a home you inherited to produce income:: If a person acquired their main residence on or after 20 September 1985, and they died and it passed to you as a beneficiary (or as trustee of their estate) after 20 August 1996, you are taken to have acquired the dwelling at its market value at the time you first used it to produce your income if: · you first used the dwelling to produce income after 20 August 1996 · when a CGT event happens to the dwelling, you would get only a partial exemption because you used the dwelling to produce assessable income during the period you owned it · you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income, and · the CGT event did not happen to the dwelling within two years of the person's date of death. If all of the above apply, you must work out your capital gain or capital loss using the market value of the dwelling at the time you first used it to produce income. You do not have a choice. In your case, you are not eligible for the full exemption on the disposal of your interest in the property as you did not dispose of it within two years of the deceased's date of death. However, if a CGT event had happened just before you first used the property for producing income you would have been allowed a full exemption as the first use was within two years of deceased's date of death. Therefore, you are taken to have acquired your interest in the property for the market value of it immediately before it was used for income producing purposes.