CGT Start Date on Inherited property

Question

I am currently living/retired in Thailand and am considered a Non Resident for Taxation purposes.

My mother purchased an apartment in May 2013. She passed away in Feb 2017. The apartment was left to me in the Will and the transfer to my name was completed in Oct 2017.

I lived in the apartment until I moved to Thailand in April 2018 and the apartment was rented out in Dec 2018

I am planing on selling the apartment in the next 2 years and at this time I would think it will be sold at a loss on the purchase price.

So what date will the ATO take in to consideration when calculating the capital loss and can this loss be added to already obtained capital losses for previous share sales. Also is there anything else I should consider about selling the apartment that might lead to other complications

Thank you


Answer

Short answer – Market value at Feb 2017

I am assuming that the apartment was covered by your mother’s main residence exemption when she died.

If so this means you inherited the property at the market value at the date of her death, Feb 2017, section 128-15 1997 ITAA. That is the first element of your cost base and that is when the ownership period begins for you. You can add to this a portion of the probate costs, improvements and selling costs Section 110-25 1997 ITAA. You may also have to reduce this cost base by any building depreciation claimed against the rent. The difference between this and the selling price is your capital gain or loss.

Yes, this can be added to other capital losses and carried forward. If it is a capital gain then these share losses can be used to reduce that capital gain.

The reason I have not discussed any exemption for the time you were living there or any resetting of the cost base once you rented the property out is because if you are a non resident for tax purposes at the time you sign the contract to sell then you are not entitled to any concessions associated with living there, right back to the start of your ownership period. Though you will be entitled to the 50% CGT discount for the period before you went overseas, this is calculated on a days resident versus days non resident as a percentage of the capital gain, basis.

Please note this advice would differ if the apartment was not covered by your mother’s main residence exemption when she died. She could have been in a nursing home, just as long as the apartment was still being covered because she had lived there and it had been rented for less than 6 years since she moved out. If it was not earning income then the period she can cover it is infinite just a question of whether she lived there and did not cover another property with her main residence exemption.

Also note that if you sell the unit at a profit you can increase the cost base by holding costs since date of death such as body corp, insurance, rates, repairs, maintenance etc that have not otherwise been claimed as a tax deduction. These expenses just can’t increase a capital loss.

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