Main residence
Special rules apply if the asset was the deceased person’s or beneficiary’s main residence (see Inherited main residence and flowchart 3.6).
Other real estate
Even if the property was not the deceased person’s main residence, special rules may mean you qualify for a full or partial exemption when you dispose of it (see Inherited main residence and flowchart 3.6).
Other assets
In administering and winding up a deceased estate, a legal personal representative may need to dispose of some or all of the assets of the estate. Assets disposed of in this way are subject to the normal rules and any capital gain the legal personal representative makes on the disposal is subject to CGT.
Similarly, it may be necessary for the legal personal representative to acquire an asset (for example, to satisfy a specific legacy made). Any capital gain or capital loss they make on disposal of that asset to the beneficiary is subject to the normal CGT rules.
If a beneficiary sells an asset they have inherited, the normal CGT rules also apply.
Acquisition of asset
If you acquire an asset owned by a deceased person as their legal personal representative or beneficiary, you are taken to have acquired the asset on the day the person died. If that was before 20 September 1985, you disregard any capital gain or capital loss you make from the asset.
Cost base of asset
Assets acquired by the deceased person before 20 September 1985
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.
If, before they died, a person made a major improvement to a pre-CGT asset on or after 20 September 1985, the improvement is not treated as a separate asset by the legal personal representative or beneficiary. They are taken to have acquired a single asset. The cost base of this asset, when the legal personal representative or beneficiary acquires it, is equal to the cost base of the major improvement on the day the person died plus the market value of the pre-CGT asset (excluding the improvement) on the day the person died.
Assets acquired by the deceased person on or after 20 September 1985
If a deceased person acquired their asset on or after 20 September 1985, the first element of your cost base and reduced cost base is taken to be the deceased person’s cost base and reduced cost base of the asset on the day the person died.
There is an exception if the asset is a dwelling and certain conditions are met. See Cost to you of acquiring the dwelling.
If the deceased person died before 21 September 1999, and you choose the indexation method to work out the capital gain when you dispose of the asset (or when another CGT event happens), you index the first element of the cost base from the date the deceased person acquired it up until 21 September 1999.
If the deceased person died on or after 21 September 1999, you cannot use the indexation method and, when you dispose of the asset, you must recalculate the first element of your cost base to leave out any indexation that was included in the deceased’s cost base.
Expenditure incurred by a legal personal representative
As a beneficiary, you can include in your cost base (and reduced cost base) any expenditure the legal personal representative (for example, the executor) would have been able to include in their cost base if they had sold the asset instead of distributing it to you. You can include the expenditure on the date they incurred it.
For example, if an executor incurs costs in confirming the validity of the deceased’s will, these costs form part of the cost base of the estate’s assets.