CGT calculation when Pre CGT Property passed between siblings

Question

Taxpayer received 25% of a small rural property (1 and 2/3rd acres – not farmed) pre CGT via a family Estate. Subsequently – post CGT – taxpayer receives further proportions of the property via two further Deceased Estates. So by 1998 owns 100% of property. Her children live in that property from 1998 and do not pay rent. Property transferred to the children in 2022 at market value. From 1998 about $200,000 of holding costs are incurred in holding the property.

Therefore for the taxpayer 2022 tax return CGT calculation we have a 25% pre CGT and 75% post CGT property. The taxpayer feels that all of the holding costs should be attributed to the post CGT 75% portion as they were all incurred post CGT. My feeling is that the holding costs are attributed to the whole property – that is 25% of the holding costs are attributed to the pre CGT portion. Only 75% of the holding costs can can be added to the post CGT portion cost base.
The property was never rented. Tax payer has always been an Aust tax resident.

Additional Questions & Information

I just need to clarify a few points:

Did your client ever live in the property if so I need to know how much she owned of it at that time

No – never the main residence of our client. Original owner deceased 1977

I can see she inherited 25% pre CGT from an estate and 50% Post CGT from two estates but where did she get the other 25% from and when?

Two parts were inherited from family deceased Estates at MV at the time as these parts had been pre CGT acquisitions to the deceased.
Balance acquired 13 Feb 1998 by buying out other owners $100,000. Part of clients cost base.

Who lived there pre 1998.

A few family members at different times over the years. But for some years prior to 1998 one family member was living there part time. That family member had been paying all running / holding costs up to 1998 (although only ¼ owner)
His 25% share went 1/3^rd to our client. On DOD 13 Feb 1998

What portions did she acquire pre 20^th August 1991?

Held 25% to June 1991 – then part owner deceased 13 June 1991 and the deceased share at the time (25% acquired pre CGT) divided between the 3 remaining owners. Ie. each acquired 8.333%. Therefore at June 1991 – 3 owners are now 1/3^rd each.

Are you sure all inherited property was really inherited? If it was just as a result of survivorship (ie joint tenancy) and a post 1985 property there is no reset of the cost base.

Ownerships were always as Tenants in Common

How did the deceased in the two post 1985 estates use the property and did their acquire their interest before or after 1985.

The deceased Interest were acquired pre CGT and past to our client Taxpayer at MV (PROFESSIONAL VALUATIONS) at DOD

Answer

OMG lucky you are an Accountant. The main thing I would like to point out to you is that section 110-25(4) only allows you to increase the cost base by holding costs if the asset was acquired after 20^th August 1991.

I have assumed the following will make sense to you as an Accountant but please do not hesitate if you need clarity or I have misunderstood the details of the acquisitions. I trust that no new buildings have been construction on the property. I am assuming the survivor that your client purchased from actually owned 50% of the property at that time because even though, they were tenants in common at each death they just left their share equally to the other owners. I am confused that you say when your client purchased for $100,000 they bought out other owners as my understanding is there was only one other owner by then. Have I got that right?

25% inherited 1977	25% of sale proceeds and cost base ignored, don’t forget to exclude 25% of selling costs too.
8.3% – 1/3rd of 25% Inherited 13th June 1991	Cost base market value at DOD as pre 1985 to deceased (section 128-15 ITAA 1997) but cannot increase cost base by any holding costs as pre 20th August 1991 (section 110-25(4)).
16.7% half of 33.3% Inherited 13th Feb 1998	Cost base starts with market value at DOD as pre 1985 to deceased can add 16.7% of holding costs from 13th Feb 1998.
50% purchased from remaining survivor around 13th Feb 1998	For $100,000 can increase cost base by 50% of holding costs from around 13th Feb 1998
100%

Maybe doing a spreadsheet like the one attached for each of the portions will help.