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Edited version of your private ruling
Authorisation Number: 1012166579606
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Subject: Capital gains tax - deceased estate - disposal of dwelling
Question 1:
Is your share of any net capital gain made on the disposal of your late parent's main residence which was occupied by your relative who had a right to reside, disregarded?
Answer:
No.
Question 2:
Is your share of any net capital gain made on the disposal of your late parent's main residence which was occupied by your relative who had a right to reside, partially exempt?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts:
Your parent's jointly purchased a dwelling prior to 20 September 1985.
Parent 'A' passed away after 20 September 1985 and parent 'B' inherited their share of the dwelling.
Parent 'B' subsequently passed away.
You have provided a number of documents, which forms part of and should be read in conjunction with this private ruling:
We have obtained the following information from this document:
Parent 'B' granted a right to reside in the dwelling to a relative, during their lifetime, or until they marry or permanently vacate the property.
You are one of the beneficiaries of your late parent's estate.
Your relative has now permanently vacated the dwelling and entered a nursing home.
The estate will sell the property and will make a capital gain.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Subsection 118-195(1)
Income Tax Assessment Act 1997 Section 118-200
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
In the current situation, it is accepted that your relative has relinquished their interest in the asset by vacating the property, once this occurred the dwelling was no longer their main residence. The estate is taken or deemed to have acquired their interest in the asset on the deceased's date of death.
A capital gain may be disregarded by an estate if the estate disposes of the pre capital gains asset and the dwelling was the main residence of an individual who had a right to occupy the dwelling under the deceased's will, for the entire period.
In your situation, as the dwelling ceased to be the main residence of your relative prior to it being sold, the estate will be entitled to a partial exemption from capital gains tax (CGT).
The capital gain is worked out using the following formula:
Capital Gain or capital loss amount x non main residence days
days in the entire ownership period
The ownership period commences on the date the property was purchased and ceases on the date that settlement of sale occurs.
Non main residence days will be the number of days from the date your relative left the property until the date that settlement of sale occurs.
This means that any partial capital gain made on the sale of the property will need to be included in the return of the estate. A beneficiary, who is entitled to a share of a trust's net capital gain which included a net capital gain that has been reduced by the CGT discount, is required to gross up the capital gain by multiplying that gain by two. This allows for the beneficiary to apply any capital loss and then apply the CGT discount.
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