Michael, an Australian tax resident, inherited a property from his deceased father's estate valued at $600,000 at the time of inheritance. He sells the property 18 months later for $720,000. What is his assessable capital gain?

Q: What is the correct answer to: Michael, an Australian tax resident, inherited a property from his deceased father's estate valued at $600,000 at the time of inheritance. He sells the property 18 months later for $720,000. What is his assessable capital gain?

The correct answer is $60,000. Option B is correct because Michael's cost base is the market value at inheritance ($600,000), not his father's original cost. His capital gain is $720,000 - $600,000 = $120,000. Since he held the property for more than 12 months as an Australian tax resident, he qualifies for the 50% CGT discount under Division 115 of the Income Tax Assessment Act 1997. Therefore, his assessable capital gain is $120,000 × 50% = $60,000.

Q: What background knowledge is needed for this Finance Taxation question?

Under Australian tax law, inherited property receives a 'stepped-up cost base' equal to market value at the date of death (Section 128-15 ITAA 1997). This eliminates CGT on gains accrued during the deceased's ownership. The 50% CGT discount applies to assets held for more than 12 months by Australian tax residents (Division 115 ITAA 1997). The discount reduces the assessable capital gain, not the gross gain. CGT events occur when property is disposed of, with the gain calculated as proceeds minus cost base minus incidental costs.

Q: What is a good way to remember the answer to this Finance Taxation question?

D - Date of death sets cost base, I - Inheritance gets stepped-up value, S - Subtract from sale price for gain, C - Cut in half if held 12+ months (50% discount). Remember: 'Death resets the clock, inheritance steps up, subtract for gain, cut if long-term.' When you see inheritance CGT questions, immediately think DISC: identify the date of death value as cost base, calculate the gross gain, then apply the 50% discount if held over 12 months by an Australian tax resident.

Q: What exam tip applies to this Finance Taxation question?

For inherited property CGT questions, always use market value at death as cost base, never the deceased's original cost. Calculate gross gain first, then apply 50% discount if held 12+ months.

Q: How does this Finance Taxation concept apply in Australian real estate practice?

Sarah inherits her grandmother's investment property valued at $800,000 at death. Two years later, she sells for $950,000. As a real estate agent, you'd advise that her cost base is $800,000 (not grandmother's 1980s purchase price), her gross gain is $150,000, and with the 50% discount, her assessable gain is $75,000. This knowledge helps clients make informed decisions about timing sales and understanding tax implications.

Question

Finance TaxationCGTHARD

Michael, an Australian tax resident, inherited a property from his deceased father's estate valued at $600,000 at the time of inheritance. He sells the property 18 months later for $720,000. What is his assessable capital gain?

Answer Options

A

$120,000

B

$60,000

C

$0 - inherited property is CGT exempt

D

$360,000