Edited version of your private ruling

Authorisation Number: 1012491522246

Ruling

Subject: Deceased estate

Questions and answers

1. Can the Commissioner determine the residency status of the deceased at the time of death?

No

2. Is the dwelling the main residence of the deceased?

Yes

3. Will the Commissioner exercise his discretion to grant an extension of the two year time period to disregard any capital gain or loss made on the sale of the dwelling?

No

4. Will a partial exemption apply for capital gains tax purposes on disposal of the dwelling?

Yes

5. Is the relevant period to calculate the exempt portion of the capital gain from the date of purchase of the dwelling by the deceased's spouse until the sale of the dwelling?

Yes

6. Is the acquisition date of the dwelling for the trustee the date of death of the deceased?

Yes

7. In calculating the capital gain on sale of the dwelling, is the cost base of the dwelling the deceased's cost base?

Yes

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

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.

You are the trustee for the deceased's estate.

The deceased was born overseas.

The first known arrival of the deceased into Australia was date A.

The deceased married Person X (spouse).

The deceased's spouse solely acquired a dwelling (the dwelling) in Australia on date B, after 20 September 1985.

The area of the dwelling and surrounding land is less than 2 hectares.

The deceased's spouse died on date C.

The deceased inherited the dwelling as a result of the spouse's will.

The deceased did not own any other property in or outside Australia.

The dwelling is listed as the residential address in the wills and probates of both the deceased as well as the deceased's spouse.

All of the deceased's belonging and effects were in the dwelling.

According to records provide by the Australian Department of Immigration, the deceased resided in Australia for a certain period.

From date D until death on date E, the deceased travelled in and out of Australia each year.

The deceased did not receive an Australian pension.

You have provided some accounts such as home and contents insurance and telephone which were all in the name of the deceased and addressed to the dwelling.

The deceased died on date E.

The deceased left a will which provided their estate go to their beneficiaries.

Probate was granted.

As trustee, you have chosen for the dwelling to be the deceased's main residence under the main residence absence rules.

The dwelling was used for income producing purposes since the deceased's death.

The dwelling was sold and settled on date F, several years after the deceased's death for more than the purchase price.

There was no contest to the will and no external factors that delayed the sale of the property.

The beneficiaries decided to rent out the dwelling following the death of the deceased.

For a considerable time the trustee experienced internal issues that prolonged the Estate administration. This also included lack of funds within the Estate to deal with expenses being incurred in renting out the property and dealing with the beneficiaries to resolve this issue.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-110.

Income Tax Assessment Act 1997 Subsection 118-145.

Income Tax Assessment Act 1997 Subsection 118-195(1).

Income Tax Assessment Act 1997 Subsection 118-200.

Income Tax Assessment Act 1997 Subsection 118-205.

Reasons for decision

Residency status of deceased at the time of death

The information which has been provided is not sufficient to determine the deceased's residency status at the time of death. We also do not have records to determine the deceased's residency status.

Capital gains tax and main residence

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a full exemption from CGT if the asset being disposed of is a person's main residence.

To qualify for a full main residence exemption (subject to some extensions to main residency provided), the dwelling must have been the person's main residence for the whole period that they owned it (or subject to an extension provided by Division 118 of the ITAA 1997) and must not have been used to produce assessable income. 

Taxation Determination TD 51 sets out factors to be considered when determining if a dwelling is a person's main residence. These include but are not limited to:  

· the length of time the taxpayer has lived in the dwelling

· the place of residence of the taxpayers family

· whether the taxpayer has moved his or her personal belongings into the dwelling

· the address to which the taxpayer has his or her mail delivered

· the taxpayers address on the Electoral Roll

· the connection of services such as telephone, gas and electricity

· the taxpayers intention in occupying the dwelling.  

We are satisfied that the dwelling was the deceased's main residence as:

· The deceased did not own any other property in or outside Australia.

· You have provided some accounts such as home and contents insurance and telephone which were all in the name of the deceased and addressed to the dwelling.

· The dwelling is listed as the residential address in the wills and probates of both the deceased as well as the deceased's spouse.

Main residence exemption

To qualify for a full main residence exemption from CGT:

· the dwelling must have been a person's home for the whole period they owned it;

· they must not have used the dwelling to produce assessable income; and

· any land on which the dwelling is situated must be 2 hectares or less.

Main residence absence choice

Subsection 118-145 of the ITAA 1997 allows a choice that a dwelling continues to be treated as the main residence even though it has ceased to be so. The choice can be made for a total of six years where the dwelling was used for the purpose of producing assessable income, or indefinitely where it was not used for this purpose.

The absence concession is only available once the dwelling has qualified as the person's main residence (as discussed above). If this choice is made, no other dwelling can be treated as their main residence at the same time.

As trustee, you have chosen for the dwelling to be the deceased's main residence under the main residence absence rules.

We accept the dwelling was the deceased's main residence until they died under the absence rule as:

· The deceased married Person X who acquired the dwelling on date B.

· All of the deceased's belonging and effects were in the dwelling.

· According to records provide by the Australian Department of Immigration, the deceased resided in Australia for a certain period.

· From date D until death on date E, the deceased travelled in and out of Australia each year.

In summary, we accept the dwelling was the deceased's main residence until they died.

Commissioner's discretion to extend the two year main residence rule

When a person inherits a deceased person's dwelling, they may be exempt or partially exempt when a CGT event happens to it (for example, they sell it).

Under section 118-195 of the ITAA 1997 where the dwelling is sold within two years of the deceased's death, the trustee or beneficiary can disregard the capital gain or capital loss resulting from the sale.

A trustee or beneficiary of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

· the ownership of a dwelling or a will is challenged;

· the complexity of a deceased estate delays the completion of administration of the estate;

· a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury); or

· settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling.

In your case, there was no contest to the will and no external factors that delayed the sale of the property. Following the death of the deceased, the beneficiaries decided to rent out the property. We acknowledge that for a considerable time the trustee experienced internal issues that prolonged the Estate administration. This also included lack of funds within the Estate to deal with expenses being incurred in renting out the property and dealing with the beneficiaries to resolve this issue.

While we appreciate your particular circumstances, there was no challenge to the will. The property was rented out from the time of the deceased's death until sale and the time period during which trustee held the ownership interest in the dwelling was significantly longer than two years.

In your case, the circumstances are as such that the Commissioner cannot exercise his discretion to extend the two year time period. Therefore, the capital gain on sale cannot be totally disregarded.

Partial exemption

Where a taxpayer inherits a property and it takes more than two years for the property to be sold from the time of the deceased's death, the net capital gain is calculated as follows under section 118-200 of the ITAA 1997:

Non-main residence days

'Non-main residence days' is the number of days that the dwelling was not the main residence

(a) If the deceased acquired the dwelling before 20 September 1985, non-main residence days is the number of days in the period from their death until settlement of contract for sale of the dwelling, when the dwelling was not the main residence of either the deceased's spouse, an individual who had a right to occupy the home under the deceased's will, or the beneficiary who disposed of the dwelling as a beneficiary

(b) If the deceased acquired the dwelling on or after 20 September 1985, non-main residence days is the number of days calculated under (a) plus the number of days in the deceased's period of ownership when the dwelling was not their main residence (if any).

Total days

(a) If the deceased acquired their ownership interest before 20 September 1985, 'total days' is the number of days from their death until settlement of contract for sale of the dwelling.

(b) If the deceased acquired the ownership interest on or after 20 September 1985, total days is the number of days in the period from when the deceased acquired the dwelling until settlement of contract for sale of the dwelling.

Further partial exemption adjustment

As the deceased inherited the dwelling from his spouse, the formula is adjusted to take into account the time when the dwelling was the main residence of an individual (deceased's spouse) in the inheritance chain (section 118-205 of the ITAA 1997).

In your case, the non-main residence days will be from the date the deceased died (date E) until settlement date of the contract of sale (date F).

Total days will be from the date the deceased's spouse acquired the dwelling (date B) until the dwelling was sold (date F).

Acquisition date of dwelling for trustee

If a person acquires an asset owned by the deceased as a trustee or beneficiary they are taken to have acquired the asset on the day the deceased died.

In your case, the acquisition date of the dwelling is the date of death of the deceased (date E).

Cost base

The cost base of an asset consists of five elements. If the deceased acquired their asset on or after 20 September 1985, the first element of the beneficiary's or trustee's cost base is taken to be the deceased's cost base on the day the deceased died.

In your case, the deceased died on date E and acquired the dwelling after 20 September 1985. Therefore your cost base will be their cost base. The deceased's cost base will be the spouse's cost base at the time of the spouse's death. As the spouse acquired the dwelling after 20 September 1985, the first element of the spouse's cost base is the cost of the dwelling purchased on date B. In other words, the first element of your cost base will be the cost of the dwelling on date B.

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