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Edited version of private ruling
Authorisation Number: 1011499181820
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Ruling
Subject: capital gains tax and deceased estate - disposal of property
This ruling applies to the beneficiaries of the trust and to the trustee and to any future trustees, for as long as the ruling remains current.
Question 1
Is the first element of the cost base of a dwelling acquired as part of a deceased estate the market value at the date of death?
Yes.
Question 2
Was the dwelling the main residence of the deceased just before their death?
Yes.
Question 3
Is the capital gain or capital loss made upon disposal of the dwelling calculated using the formula in Section 118-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts and circumstances
The deceased purchased a dwelling after 20 September 1985. The dwelling was the deceased's main residence.
The deceased moved into a family member's home to be cared for.
The property was used as an income producing asset for a period of less than 6 years.
The deceased returned to the dwelling for several months.
The deceased returned to family members to be cared for and the dwelling was rented for period of less than 6 years.
The deceased died during the period of rental.
The dwelling was sold more than 2 years after the death of the deceased.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-3
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 118-145(1)
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 118-200
Income Tax Assessment Act 1997 Subsection 128-15(2)
Reasons for decision
Reasons for decision
If a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. If you make this choice can not treat any other dwelling as your main residence during the periods of absence. Where you use dwelling for income producing purposes, you are able to continue to treat the dwelling as your main residence for a period of 6 years. You are entitled to apply this absence choice to each period of absence after you have re-established the dwelling as your main residence.
In this situation, the deceased purchased the dwelling on after 20 September 1985 and resided in the dwelling as their main residence until relocating to another residence to be cared for by family members. The dwelling was first used to produce income from this time for less than 6 years when the deceased returned to the property. The deceased again vacated the dwelling to be cared for by family members and the dwelling was rented from this time for a period less than 6 years.
The deceased died prior to the disposal of the dwelling. The dwelling continued to be the deceased's main residence for the two periods of absence until their death. While absence choices have been made, the last absence choice terminates upon death and can not be applied to the period between the date of death and date of disposal where the dwelling was held by the trustee.
Question 1
If you acquire an asset owned by a deceased person as their legal personal representative or beneficiary, you are taken to have acquired the asset on the day the person died.
The first element of the cost base of a dwelling that was the deceased's main residence just before they died is the market value of the dwelling on the deceased's death
In your situation, you acquired the dwelling upon the death of the deceased. As a choice was made to continue to treat the dwelling as the deceased's main residence the first element of the cost base for capital gains tax purposes will be the market value as at the date of death.
Question 2
As an absence choice was made and the dwelling had not been income producing for a more than six years when the deceased died the dwelling is considered to be the deceased's main residence at their date of death.
Question 3
A capital gain or capital loss that either a beneficiary or legal personal representative makes on the disposal of a dwelling that was the deceased's main residence just before they died that the deceased acquired after 20 September 1985, is disregarded if:
- from the deceased's date of death until the ownership interest ends the dwelling was the main residence of one or more of the following persons:
- the spouse of the deceased immediately before death
- an individual who had a right to occupy the dwelling under the deceased's Will
- an individual who brought about the CGT event and the ownership interest
- in the dwelling had passed to that individual as beneficiary, or
- they dispose of their ownership interest within 2 years of the deceased's death.
In this situation, you as trustee disposed of the deceased's dwelling more than two years after the deceased's date of death and no one who had the right to occupy the dwelling under the deceased's Will lived in the dwelling from the deceased's death until disposal by you as trustee. Consequently, a full main residence exemption will not be available. However, a partial exemption will apply.
Note: The Commissioner does not have any discretion to extend the two year exemption period
You calculate the capital gain or capital loss made due to the partial exemption by using the formula:
Non-main residence days
Capital gain or Capital Loss amount x Total days
Where:
The capital gain or capital loss amount is the capital gain or capital loss that you would have made from the CGT event.
Total days is the number of days from settlement of the purchase contract to acquire the dwelling by the deceased to settlement of the contract for the sale of the dwelling.
Non-main residence days is the number of days from the day after the deceased's death until settlement of the contract for the sale of the dwelling.
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