Facts
Mum has passed away leaving: 1. Dad with the main residence; 2. Daughter with the pre-CGT investment property; and 3. Son with a post-CGT investment property.
Question
What are the general tax considerations for each party?
Tax Tip
Deceased Estates Division 128 ITAA 1997 deals with deceased estates. Section 128-15(2) deals with the effect on the executor/beneficiary of a deceased estate and provides that the executor/beneficiary is taken to have acquired the asset on the day the deceased died. For completeness, section 128-15(3) provides that any capital gain or loss the executor makes when the asset passes to a beneficiary of the estate is disregarded. The main tax consideration will be the cost base of the asset. Main residence Item 3 of the table in section 128-15(4) deals with a main residence. Importantly, it only applies if: A. the dwelling was not used by the deceased, when the deceased passed away, for the purpose of producing assessable income; and B. the deceased was not an excluded foreign resident. If (A) and (B) are satisfied then Dad’s cost base is the market value on the day the Mum died. If any of (A) or (B) are not satisfied then the cost base is the cost base of the property on the day Mum died (being Mum’s original cost base and any further cost base). Note the 2-year ownership rule can apply and, consistently with item 3 of the table in section 128-15(4), both (A) and (B) above must also be satisfied. Further note, the 2-year ownership rule can be longer than 2 years but that is the subject of a future tax tip. Pre-CGT investment property Daughter’s cost base for the pre-CGT investment property is the property’s market value on the day the Mum died. Item 4 of the table in section 128-15(4) deals with pre-CGT assets. Note the 2-year ownership rule (per section 118-195) can also apply to pre-CGT investment properties. Post-CGT investment property Son’s cost base for the post-CGT investment property is the cost base of the property on the day Mum died (being Mum’s original cost base and any further cost base). Item 1 of the table in section 128-15(4) deals with post-CGT assets that are not main residences or pre-CGT assets. Note, the table in section 128-15(4) deals with other assets that are not relevant for this tax tip. Note further, the 2-year ownership rule does not apply because such rule only applies to main residences and pre-CGT assets.
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