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Edited version of private ruling
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Ruling
Subject: CGT: Deceased estate
Question and answer
Are you entitled to a partial exemption for the sale of a dwelling you inherited from a grandparent's deceased estate?
Yes
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
The testator purchased the dwelling before 20 September 1985.
The testator was the sole owner of the dwelling before 20 September 1985 through to the time of their death.
The testator died after 1986.
The testator bequeathed the dwelling to their grandchildren as tenants-in-common
A life tenancy was created for the child of the testator, the life tenant died some years later.
The dwelling was not your main residence any time after the testator's death.
The property was sold by the trustees some time after the life tenant died.
Relevant legislative provisions
Income Tax Assessment Act 1997
Section 118-195
Section 118-200
Reasons for decision
Dwelling acquired from a deceased estate
The deceased died after 19 September 1985, any asset forming part of their estate which ``passes'' to you is deemed to have been acquired on the date of death.
Where the dwelling was, immediately before death, the deceased's sole or principal residence and was not used for the purpose of gaining or producing assessable income, the first element of the dwelling's cost base is the market value at the date of death.
Full exemption for beneficiaries of deceased estates
There is a full CGT exemption on an inherited dwelling for any capital gain or loss that is made from a relevant CGT event happening if:
(1) the trustee's or beneficiary's ownership interest ends within two years of the deceased's death, or
(2) from the time of the deceased's death until the trustee's or beneficiary's ownership interest ends, the dwelling was the main residence of one or more of the following:
· the spouse of the deceased immediately before death (except a spouse living permanently and separately apart from the deceased)
· an individual who had a right to occupy the dwelling under the deceased's will, or
· if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.
More than two years passed from the time of your grandparent's death to the sale of the dwelling. From the time of your grandparent's death the dwelling was not occupied by an individual who had a right to occupy the dwelling for the entire period, therefore a full CGT exemption is not available to you.
If the above full exemption for beneficiaries of deceased estates under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) does not apply (because the conditions of that section are not satisfied), the beneficiary or trustee may be entitled to a partial exemption under section 118-200 of the ITAA 1997.
Partial exemption for deceased estate dwellings
Section 118-200 of the ITAA 1997 allows for a partial exemption if:
· you are an individual and your ownership interest in a dwelling passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
· section 118-195 of the ITAA 1997 does not apply.
As section 118-195 of the ITAA 1997 does not apply for the reason that the property was not sold on or before the date of the your parent's death, a partial capital gain or loss is calculated using the formula stated in section 118-200(2):
CL or CL amount x Non-main residence days
Total days
Where the deceased acquired the property before 20 September 1985:
CG or CL amount is your share of the capital gain or capital loss you would have made from the CGT event.
Non-main residence days is the sum of the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195. In your case this is the number of days from when your parent died, to the date of sale.
Total days is the number of days from when the deceased acquired the ownership interest to the date your ownership interest ends. In your case this is the number of days from your grandparent's death, to the date of sale.
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