Ruling period: 1 July 2009 to 30 June 2010

Ruling: Question and Answer | Is the first element of the cost base for the share of the property you acquired when your name was added to the lease the value on that day? | Yes. | Is the first element of the cost base for the share of property you acquired from the deceased the value at their date of death? | 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. Prior to 20 September 1985 A & B purchased two shack site licences lot 1 and 2. Prior to 20 September 1985 A and B received approval from the council to erect a shed on Lot 2. Prior to 20 September 1985 A & B transferred the shack licence to Lot 2 into C's name with a transferrable lease expiring during 19xx. In 19xx the lease was changed to non-transferrable life tenure and C added you and D as joint tenants to the policy. You C also paid a further $ for the site. In xx the property changed to freehold. On xx xx xx C passed away. The property passed to you and D. On xx xx xx the property was sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 110-25(2) | Income Tax Assessment Act 1997 Subsection 110-55(2) | Income Tax Assessment Act 1997 Subsection 112-20(1) | Income Tax Assessment Act 1997 Section 124-160 Reason for Decision | You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). | Cost Base | The cost base of a CGT asset is made up of five elements: | · money or property given for the asset | · incidental costs of acquiring the CGT asset or that relate to the CGT event | · costs of owning the asset | · capital costs to increase or preserve the value of your asset or to install or move it | · capital costs of preserving or defending your ownership of or rights to your asset. | Under the general cost base and reduced cost base rules, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of property given (or required to be given) in respect of acquiring it (subsections 110-25(2) and 110-55(2) of the ITAA 1997). | The general rules may be modified if the market value substitution rule in section 112-20 of the ITAA 1997 applies. | If market value substitution rule applies; | The first element of your cost base and reduced cost base of a CGT asset you acquire from another entity is its market value (at the time of acquisition) if: | (a) you did not incur expenditure to acquire it, except where your acquisition of the asset resulted from: | (i) *CGT event D1 happening; or | (ii) another entity doing something that did not constitute a CGT event happening; or | (b) some or all of the expenditure you incurred to acquire it cannot be valued; | or | (c) you did not deal at arm's length with the other entity in connection with the acquisition. | Cost Base First Interest | You have two interests in the property. The first interest was acquired in 1990 when C added you to the lease as a joint tenant on the policy. | Therefore, when C included you on the lease as a joint tenant, the first element of your cost base and reduced cost base for the first interest you acquired in the property will be the market value of the property in 1990. | Cost Base Second Interest | The cost base of the second interest was acquired when you inherited, a portion of, C's interest of the property upon death. | If the deceased person acquired their asset before 20 September 1985, the first element of your cost base and reduced cost base (that is, the amount taken to have been paid for the asset) is the market value of the asset on the day the person died. | Therefore; as C acquired the share of the property prior to 20 September 1985 your market value of the interest will the value of the property at the date of death.

Reasons for decision: Summary: You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). | Detailed Reasoning - Cost Base: The cost base of a CGT asset is made up of five elements: · money or property given for the asset · incidental costs of acquiring the CGT asset or that relate to the CGT event · costs of owning the asset · capital costs to increase or preserve the value of your asset or to install or move it · capital costs of preserving or defending your ownership of or rights to your asset. Under the general cost base and reduced cost base rules, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of property given (or required to be given) in respect of acquiring it (subsections 110-25(2) and 110-55(2) of the ITAA 1997). The general rules may be modified if the market value substitution rule in section 112-20 of the ITAA 1997 applies. If market value substitution rule applies; The first element of your cost base and reduced cost base of a CGT asset you acquire from another entity is its market value (at the time of acquisition) if: (a) you did not incur expenditure to acquire it, except where your acquisition of the asset resulted from: (i) *CGT event D1 happening; or (ii) another entity doing something that did not constitute a CGT event happening; or (b) some or all of the expenditure you incurred to acquire it cannot be valued; or (c) you did not deal at arm's length with the other entity in connection with the acquisition. | Detailed Reasoning - Cost Base First Interest: You have two interests in the property. The first interest was acquired in 1990 when C added you to the lease as a joint tenant on the policy. Therefore, when C included you on the lease as a joint tenant, the first element of your cost base and reduced cost base for the first interest you acquired in the property will be the market value of the property in 1990. | Detailed Reasoning - Cost Base Second Interest: The cost base of the second interest was acquired when you inherited, a portion of, C's interest of the property upon death. If the deceased person acquired their asset before 20 September 1985, the first element of your cost base and reduced cost base (that is, the amount taken to have been paid for the asset) is the market value of the asset on the day the person died. Therefore; as C acquired the share of the property prior to 20 September 1985 your market value of the interest will the value of the property at the date of death.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.