If two or more people acquire a property asset together, it can be either as tenants in common or as joint tenants.
If a tenant in common dies, their interest in the property is an asset of their deceased estate. This means it can be transferred only to a beneficiary of the estate or be sold (or otherwise dealt with) by the legal personal representative of the estate.
If one of the joint tenants dies, their interest in the property passes to the surviving joint tenants. It is not an asset of the deceased estate.
For CGT purposes, if you are a joint tenant you are treated as if you are a tenant in common owning equal shares in the asset. However, if you are a joint tenant and another joint tenant dies, on that date their interest in the asset is taken to pass in equal shares to you and any other surviving joint tenants, as if their interest is an asset of their deceased estate and you are beneficiaries.
This means that if the dwelling was the deceased’s main residence, you may be entitled to the main residence exemption (see Inherited main residence) for the interest you acquired from them.
If the joint tenant who dies acquired their interest in the asset on or after 20 September 1985, the first element of the cost base of the interest you acquire from them is the cost base of their interest on the day they died, divided by the number of joint tenants (including you) who acquire it. The first element of the reduced cost base of the interest you acquire from them is worked out similarly.
Example 107: Surviving joint tenants
In 1999, Ming and Lee buy a residential property for $250,000 as joint tenants. Each one is taken to have a 50% interest in it. On 1 May 2001, Lee dies.
On 1 May 2001, Ming is taken to have acquired Lee’s interest for an amount equal to Lee’s cost base on that day.
If Ming uses the property as his main residence after Lee dies, he may be entitled to the main residence exemption (see Real estate and main residence) for the interest he acquired from Lee as well as for his original interest.
End of exampleIf the joint tenant who dies acquired their interest in the asset before 20 September 1985, the first element of the cost base of the interest you acquire from them is the market value of their interest on the day they died, divided by the number of joint tenants (including you) who acquire it. The first element of the reduced cost base of the interest you acquire from them is worked out similarly.
For the indexation and discount methods to apply, you must have owned the asset (or your share of it) for at least 12 months. As a surviving joint tenant, for the purposes of this 12-month test, you are taken to have acquired the deceased’s interest in the asset (or your share of it) at the time the deceased person acquired it.
Example 108: CGT and joint tenants
Trevor and Kylie acquired land as joint tenants before 20 September 1985. Trevor died in October 2011. For CGT purposes, Kylie is taken to have acquired Trevor’s interest in the land at its market value at the date of his death.
Kylie holds her original 50% interest as a pre-CGT asset, and the inherited 50% interest as a post-CGT asset which she is taken to have acquired at its market value at the date of Trevor’s death.
If Kylie sold the land within 12 months of Trevor’s death, she would qualify for the CGT discount on any capital gain she makes on her post-CGT interest. She qualifies for the CGT discount because, for the purposes of the 12-month ownership test, she is taken to have acquired Trevor’s interest at the time he acquired it, which was before 20 September 1985.
End of example