Edited version of private ruling

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Ruling

Is the capital gain or loss from the sale of property disregarded when the sale occurs more than two years after the deceased's death but within two years from the relinquishment of a life interest in the property?

No.

This ruling applies for the following period

1 July 2009 to 30 June 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

After 20 September 1985, the taxpayer acquired a property which was their main residence till death.

The taxpayer died.

The taxpayer's will provided their former spouse with a life interest in the property.

The former spouse chose not to reside in the property.

The property was left vacant and not used for income producing purposes.

The former spouse relinquished the life interest by deed.

The property was sold

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 128

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 128-10

Income Tax Assessment Act 1997 subsection 128-15(2)

Income Tax Assessment Act 1997 subsection 128-20(1)

Reasons for decision

You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.

Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) specifies that a CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. Further, the capital gain or capital loss is made at the time of the event.

Division 128 of the ITAA 1997 contains rules that apply when an asset owned by a person just before they die, passes to their legal personal representative (the executors or trustees of the estate) or to a beneficiary in a deceased estate.

Sale of deceased's property

Section 128-10 of the ITAA 1997 provides that when a person dies, that person disregards a capital gain or capital loss from a CGT event happening to a CGT asset the person owned just before their death.

However, where the asset devolves to the legal personal representative or passes to a beneficiary of the deceased estate the legal personal representative or beneficiary is taken to have acquired the asset on the day the person died. Regardless of the actual date that legal title in the property passed (subsection 128-15(2) of the ITAA 1997).

Subsection 128-20(1) of the ITAA 1997 provides that a CGT asset passes to a beneficiary in a deceased estate if the beneficiary becomes the owner of the asset and includes the following:

· the asset passes under your Will, or that will varied by a court order, or

· under a deed of arrangement where:

a.   the beneficiary entered into the deed to settle a claim to participate in the distribution of the estate, and

b.   any consideration given by the beneficiary for the asset consists only of a variation or waiver of a claim to one or more other assets that formed part of the estate.

Under section 118-195 of the ITAA 1997 for a dwelling acquired by the deceased after 20 September 1985 which was the deceased's main residence just before they died and, at that time, was not being used for the purpose of producing assessable income, a full exemption will be available if:

1.      the ownership interest ends within two years of the deceased's death or

2.      the dwelling was, from the deceased's death until the ownership interest ends the main residence of one or more of:

a.      the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased)

b.      an individual who had a right to occupy the dwelling under the deceased's will, or

c.      an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.

The property was not disposed off within two years of the deceased's death, therefore the capital gain or capital loss made from the disposal of the property by the trustee of the deceased estate is not disregarded.

Granting an interest under the Will of a deceased person

Taxation Ruling TR 2006/14, paragraph 95 states:

In some cases an individual may, by will, give legal life and remainder interests in land that they owned when they died. In these circumstances, the deceased's legal personal representative is taken to have acquired the original asset on the date of the deceased's death

Accordingly, the two year period defined under section 118-195 of the ITAA 1997 applies to the life interest.

There is no Commissioners discretion attached to the provisions of section 118-195 of the ITAA 1997 to extend the two year period specified by law.

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