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Edited version of private ruling
Authorisation Number: 1011521074894
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Ruling
Subject: CGT- Main residence
Question and answer
Is capital gains tax disregarded on the sale of the property?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The deceased purchased a town house.
The deceased lived in the property until the relevant date.
For a period before the deceased died the deceased was in and out of nursing homes due to illness.
The deceased had several intervals at home during this period in which they were cared for by community care services.
While in hospital or nursing home all the deceased's mail went to their residential address.
When deceased was admitted to hospital their family decided to rent out the town house.
The deceased later died.
The house was handed over to the executor and continued to be rented out until it was sold.
The executor to the deceased estate has made an election for the property to be the deceased's main residence during the periods of absences from the house while in hospital and in nursing homes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-145(1)
Income Tax Assessment Act 1997 Subsection 118-145(2)
Income Tax Assessment Act 1997 Subsection 118-145(3)
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-185
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
You make a capital gain or capital loss if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset) that you own. The most common CGT event is CGT event A1, the disposal of an asset. However, there are a number of exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event can be disregarded, either in full or in part.
Main residence exemption
Generally, you can disregard any capital gain or capital loss you make on the disposal of a dwelling that was your main residence for your entire ownership period (section 118-110 of the ITAA 1997). However, if a dwelling was your main residence for only part of your ownership period, you are only entitled to a partial main residence exemption (section 118-185 of the ITAA 1997).
Section 118-200(4) goes on to say you ignore any non-main residence days before the deceased's death if:
(a) The *dwelling was the deceased's main residence just before the death; and
(b) The dwelling was not being used for the *purpose of producing assessable income just before the death, or any use for that purpose just before the death was ignored because of subsection 118-190(3)
Section 118-190(3)
However, you ignore any use of the *dwelling for the *purpose of producing assessable income during any period that you continue to treat it as your main residence under section 118-14.
Continuing main residence during periods of absence
In some cases, you can choose to have a dwelling treated as your main residence even though you no longer live in it (subsection 118-145(1) of the ITAA 1997). You can only make this choice for a dwelling that you have first occupied as your main residence.
If you do not use the dwelling to produce income, you can treat the dwelling as your main residence for an unlimited period of time after you cease living in it (subsection 118-145(3) of the ITAA 1997).
However, if you use the dwelling to produce income, you can treat the dwelling as your main residence for a maximum period of six years after you cease living in it (subsection 118-145(2) of the ITAA 1997).
The deceased lived in the house up until they went to hospital. The house was rented from that date until their death.
The rented period does not exceed the 6 year rule.
The executor to the deceased's estate has made an election for the house to be their main residence throughout the periods of their absence while in hospital and nursing homes.
Accordingly the house was the deceased's main residence for the whole of their ownership period.
Sale of inherited dwelling
An exemption may apply to the disposal of a dwelling you acquired because you were a trustee of a deceased estate. Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the conditions under which a capital gain or capital loss can be disregarded in this situation.
Subsection 118-195(1) of the ITAA 1997 provides that where a deceased acquired a dwelling on or after 20 September 1985 and the dwelling passed to a beneficiary after 20 August 1996, a capital gain or capital loss can be disregarded if, just before the deceased died, the dwelling was their main residence and was not used to produce income, and either:
- a beneficiary or trustee disposes of their ownership interest in the dwelling within two years of the deceased's death, regardless of whether the dwelling is used as the beneficiary's main residence or to produce income; or
- from the date deceased's death until the beneficiary or trustee disposes of their ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:
The spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased):
- An individual who had the right to occupy the dwelling under the deceased's will; or
- An individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.
The ownership period of a beneficiary or trustee commences from the deceased's date of death and ends on the date of disposal of the dwelling.
The deceased's house was sold a number of months after their death.
The first criterion in subsection 118-195(1) of the ITAA 1997 has been met.
Therefore, any capital gain or capital loss made by the estate on the disposal of the dwelling will be disregarded under section 118-195 of the ITAA 1997.
Therefore, there is no Capital Gains Tax payable by the trustee and therefore no Capital gains Tax liability for the beneficiaries.
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