Q. My mum passed away recently. Mum and dad purchased some Australian shares prior to September 1985. My dad died in 2002. I don’t have a copy of his will but I believe they owned them jointly, and when he died my mum was the beneficiary. She sold her shares last year and sadly passed later that year.
The accountant who the Estate Executor appointed has said they are subject to Capital Gains Tax (CGT). Is this correct?
A. Broadly, a capital gain is calculated by taking the difference between the sale proceeds you receive and the cost base of the CGT asset. The cost base of a CGT asset is typically what you paid for it, together with some other costs associated with acquiring, holding and disposing of it.
Assets acquired prior to 20 September 1985 are generally exempt from CGT.
However, when you inherit assets and subsequently dispose of the asset, the CGT treatment will vary depending upon when the asset was originally purchased.
For assets originally acquired prior to 20 September 1985, the cost base of the asset will be set to the value of the asset at the time of death if the assets are retained by the beneficiary.
For assets originally acquired on or after 20 September 1985, the cost base of the asset will continue to be the original purchase price (incl transaction costs) paid by the deceased.
While death itself will not trigger CGT, a Capital gain will be assessed when the assets are sold either by the estate or the beneficiary. The tax liability is determined based on the relevant tax return.
Based on the information you have provided, it appears that your mum would have inherited your father’s jointly held shares following his death. The cost base for these shares she inherited would have been reset to the applicable market value at the date of his death.
As she sold these shares, and presumably triggered a capital gain based on the cost base established in 2002, the capital gain on this portion of shares would be assessable.
However, the cost base for your mum’s original shares (i.e. her initial 50% interest) should have remained unchanged following your dad’s death. That is, they should have retained their pre 20 September 1985 exempt status. As such, any capital gain made on this portion of the shares sold by your mum should not have been assessable.
The key to managing Capital Gains is to keep good records of when assets were acquired, by whom, at what price and with what related costs. Likewise for when assets are inherited and ultimately when they are disposed of.