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Edited version of private ruling
Authorisation Number: 1011831068731
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Ruling
Subject: Sale of property and capital gains tax implications
Questions:
1. Does the capital gains tax (CGT) main residence exemption apply to the sale of the property?
Answer: No.
2. Does the CGT exemption in relation to the disposal of a dwelling acquired from a deceased estate within two years apply to the sale of the property?
Answer: No.
3. Is any capital gain made on the sale of the property subject to CGT?
Answer: Yes.
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts:
Your parent had solely owned their main residence since its construction prior to 1985.
During the early 1990s, your parent transferred ownership of the property to their children in equal shares.
There was an understanding within the family that the property would remain your parent's home during their lifetime.
The property remained their place of residence until 2010 when they entered a nursing home.
The property remained vacant until your parent's death a few months later.
The property was sold a few months after your parent's death.
You and your siblings did not derive any benefit or income from the property prior to its sale.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Division 114
Income Tax Assessment Act 1997 Division 115
Income Tax Assessment Act 1997 Division 118
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-195
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that capital gains tax (CGT) is the income tax you pay on any net capital gain you make and include in your annual income. You make a capital gain or capital loss as a result of a CGT event happening.
The most common CGT event is A1 and this happens if you dispose of a CGT asset to someone else (section 104-10 of the ITAA 1997). In your case, this will be the sale of the property by you and your siblings.
There are certain circumstances where a capital gain made can be exempt from taxation. Division 118 of the ITAA 1997 sets out the various exemptions available.
Main residence exemption
The main residence exemption is set out in section 118-110 of the ITAA 1997. The provision states that you can ignore a capital gain or capital loss that you make when you dispose of a dwelling that is your main residence. The exemption only applies if you are an individual and you have lived in the property as your main residence throughout your ownership period.
In your case, you and your siblings have owned the property since the early 1990s. You cannot claim the main residence exemption on behalf of your parent because although the property was considered their main residence, they did not own the property at the time of sale. You have also not lived in the property and established it as your main residence during the period which you have owned it. Therefore, you are not entitled to the main residence exemption.
Deceased estates exemption
Section 118-195 of the ITAA 1997 provides for an exemption from CGT when you acquire a pre-CGT asset as a beneficiary in a deceased estate and you dispose of it within 2 years of the deceased's death.
In your case, you and your siblings did not acquire the property as beneficiaries in a deceased estate. Ownership of the property was transferred to you when your parent was still alive in the early 1990s. Therefore, the exemption set out in section 118-185 of the ITAA 1997 does not apply.
Summary
There are no provisions that will allow you to disregard your share of the capital gain made from the disposal of the property. There is also no provision in the tax legislation which provides the Commissioner with the discretion to waive CGT in special circumstances. Therefore, you will be required to include your share of the gain in your assessable income.
Indexation Method and 50% Discount Method
As you have held an ownership interest in the property for more than 12 months; and the dwelling was acquired before 21 September 1999 and sold after this date, you are entitled to use either the 50% discount method or the indexation method to calculate any capital gain you have made.
More information on calculating capital gains can be found in the Guide to capital gains tax
2009-10 which can be accessed from our website www.ato.gov.au .
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