An Australian resident inherited a property from their deceased parent in 2020 valued at $400,000 and sells it in 2024 for $520,000. The property was the parent's principal place of residence. What is the cost base for CGT purposes?
Correct Answer
B) $400,000, its market value at the parent's date of death.
Australia has no general stepped-up cost base. For most post-CGT assets a beneficiary inherits the deceased's cost base. The exception applies here: a dwelling that was the deceased's main residence just before death (and not being used to produce income) takes a cost base equal to its market value at the date of death, so the cost base is $400,000. Because the sale came more than two years after death, the gain above $400,000 is taxable unless the beneficiary (or another qualifying person) used the home as their main residence.
Why This Is the Correct Answer
Under Division 128 and section 118-195 of the Income Tax Assessment Act 1997, a beneficiary who inherits a dwelling that was the deceased's main residence just before death acquires it at its market value at the date of death. The cost base is therefore $400,000 and the gain on the 2024 sale is $120,000 before any discount.
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