What is the cost base of an inherited asset in Australia for capital gains tax?
For Capital Gains Tax (CGT) purposes in Australia, the cost base of an inherited asset generally depends on when the deceased acquired it. If acquired by the deceased before 20 September 1985, the cost base is its market value on the date of death. If acquired later, it's usually the deceased's cost base.
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How it works in practice
Understanding Cost Base for Inherited Assets
When you inherit an asset in Australia, its cost base for Capital Gains Tax (CGT) purposes is crucial for determining any capital gain or loss when you eventually sell it. The rules vary depending on when the deceased acquired the asset.
Deceased Acquired Before 20 September 1985 (Pre-CGT)
If the deceased acquired the asset before 20 September 1985 (the date CGT was introduced), your cost base is generally the market value of the asset on the date of the deceased's death. This means any appreciation in value while the deceased owned it is typically not subject to CGT for you.
Deceased Acquired On or After 20 September 1985 (Post-CGT)
If the deceased acquired the asset on or after 20 September 1985, your cost base will usually be the deceased's cost base. This means you effectively step into the shoes of the deceased for CGT purposes, inheriting their original acquisition cost and any applicable costs that formed part of their cost base.
Important exceptions
The main residence exemption can prevent CGT if the inherited property becomes your primary home within two years of the deceased's death, and specific conditions are met. Different rules apply to assets inherited from a trust or superannuation fund. Additionally, if the deceased had applied the main residence exemption, your cost base might be its market value at the date of death, even if they acquired it post-CGT. Specific circumstances regarding foreign residents or non-resident beneficiaries may also alter the cost base calculation.
What you should do now
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Determine the date the deceased originally acquired the asset (before or on/after 20 September 1985).
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Obtain a professional valuation of the asset as of the deceased's date of death if they acquired it before 20 September 1985.
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Gather all records related to the deceased's original acquisition cost if they acquired it on or after 20 September 1985.
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Consult with a tax professional or the ATO if the asset was the deceased's main residence or if complex circumstances apply.
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Keep meticulous records of all costs associated with the inherited asset, including acquisition costs, ownership costs, and disposal costs.
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