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A taxpayer passed away on 20 December 2014. The taxpayer & his spouse owned a private property which was never rented out. However they also owned a rental property which was rented out as soon as they purchased it. The rental property was purchased around 10 years ago. The couple don’t own any other assets. The only liability is the mortgage for the rental property.She has a statutory declaration that states ‘I verily state that my husband did not leave any estate which requires letters of administration & that an application for letters of administration will not be made in the Supreme Court of NSW’
Now the wife transferred the late husband’s 50% share of the rental property to her name on 8 May 2015 so she owns the rental property 100% in her name. Is there any capital gains tax implications? Also to prepare the late husband’s tax return, as his title do we put instead of Mr, EF (Executor For)? Also when it comes time to prepare the late husband’s tax return, I need to include two rental schedules for the rental property in the wife’s tax return Ie one where she earned the property in joint name with her late husband & the second schedule from the date she owned it 100% ie from 8 May 2015?
Thank You Julia
Answer
Ok so I am assuming both properties were joint tenancy so there is nothing much left in the estate because an interest in a jointly owned property never goes to the estate it transfers straight to the other joint tenant. Getting into a legal rather than tax area here so I am not claiming expertise but it seems to me that if it is true, as you hear, that no one can challenge a beneficiary’s right to an asset under a joint tenancy because it does not go into the estate in the first place. Then that property was the wife’s from the day he died, in May the paper work was sorted out but she had an irrefutable right to the property upon his death so she was certainly presently entitled to the rental income even if the property wasn’t yet in her name. In short I am saying from the 21st December 2014 anything to do with the rental property goes 100% into her tax return. It should all be in one rental schedule in her tax return because it is the same property but you are going to have to carefully work out the numbers, your software might even make it impossible so do two if you have to, main thing is to get the bottom line right. I imagine you are concerned about what percentage of ownership you tell the software. This is intended to make your job easier not complicate it. You could put in 100% but adjust the actual figures you enter to correctly reflect her share.
Yes you would address the deceased’s tax return to the trustee of the estate. If there is any income after death that belongs to the estate then you need to get a new TFN for the estate and lodge a separate tax return but as reasoned above this would not apply to the rental property.
Now to the CGT, despite what I have said above CGT does treat a joint tenant as if they were a beneficiary of a deceased estate. CGT is not triggered on the transfer to her name, there is a rollover see below and her cost base for that half of the property will be whatever the husband’s cost base was at DOD.
Dwellings acquired from deceased estates
SECTION 118-197
118-197 Special rule for surviving joint tenant
This Subdivision applies to you as if the *ownership interest of another individual in a *dwelling had *passed to you as a beneficiary in a deceased estate if:
(a) you and the other individual owned ownership interests in the dwelling as joint tenants; and
(b) the other individual dies.
ECTION 128-50 Joint tenants ITAA 36
128-50(1)
This section has rules that are relevant if a *CGT asset is owned by joint tenants and one of them dies.
128-50(2)
The survivor is taken to have *acquired (on the day the individual died) the individual’s interest in the asset. If there are 2 or more survivors, they are taken to have acquired that interest in equal shares.
So for CGT purposes the law applies to the wife the same as it would if she received it via the will. So section 128-10 applies which means there is no CGT on transfer
SECTION 128-10
128-10 Capital gain or loss when you die is disregarded ITAA 36
When you die, a *capital gain or *capital loss from a *CGT event that results for a *CGT asset you owned just before dying is disregarded.
Note 1:
Section 104-215 sets out an exception to this rule if the CGT asset passes to a beneficiary in your estate who is:
• an exempt entity; or
• the trustee of a complying superannuation entity; or
• a foreign resident.
Note 2:
There is a special indexation rule for deceased estates: see section 114-10.
And section 128-15
http://law.ato.gov.au/atolaw/view.htm?dbwidetocone=08%3APLR%3ATaxation%3AINCOME%20TAX%20ASSESSMENT%20ACT%201997%3ACHAPTER%203%20-%20SPECIALIST%20LIABILITY%20RULES%3APART%203-3%20-%20CAPITAL%20GAINS%20AND%20LOSSES%26c%20SPECIAL%20TOPICS%3ADivision%20128%20-%20Effect%20of%20death%3AGeneral%20rules%3A%23001535%23SECTION%20128-15%20Effect%20on%20the%20legal%20personal%20representative%20or%20beneficiary%3B
applies to give her a cost base the same as her husband’s cost base at death.
