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Edited version of your written advice
Authorisation Number: 1013040893839
Date of advice: 28 June 2016
Ruling
Subject: Whether the capital gain or capital loss made on the proposed sale of the dwelling can be disregarded
Question
Are you entitled to disregard the full capital gain or capital loss made upon the proposed sale of the dwelling under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following periods
Year ending 30 June 20yy
Year ending 30 June 20zz
The scheme commenced on
1 July 20xx
Relevant facts and circumstances
The person passed away.
The person purchased a property which consisted of a shop front and a house at the rear of the building.
The person owned the dwelling in their own right.
The shop front was used in a business.
A small percentage of the total area of the dwelling was used in the business and the rest of the building was used as the family home.
Upon the person's passing the property was left to you.
The person and their spouse lived in the dwelling at the time of death. The deceased's spouse still resides in the dwelling. It is their intention to remain in the dwelling and use it as their main residence until the property is sold.
It is your intention to sell the dwelling. Once the dwelling is sold the deceased's spouse will move out.
Probate was granted.
The shop front has not been used in the business for some time. You currently use the space to store furniture.
The purchasers have requested an extension of the settlement date to allow them more time to determine what they can do with the property following continued negotiations with the local council.
Assumption
It is assumed that the dwelling remains the main residence of the deceased's spouse until the CGT event occurs (the sale of the property)
Further issues or you to consider
If the deceased's spouse (or another person named in item 2 of the table under section 118-195 of the ITAA 1997) does not reside in the building until the CGT event happens (the building is sold) your ownership interest in the dwelling will need to cease within 2 years of the person's death or the capital gain/capital loss from the eventual sale of the dwelling cannot be disregarded.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Subsection 118-190(4)
Reasons for decision
Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) discusses the situation where dwellings are acquired from a deceased estate.
Subsection 118-195(1) of the ITAA 1997 states a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) You are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) At least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Item |
One of these is satisfied |
And also one of these items |
1 |
The deceased acquired the ownership interest on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income |
Your ownership interest ends within 2 years of the deceased's death |
2 |
The deceased acquired the ownership interest before 20 September 1985 |
The dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: (a) The spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) An individual who has the right to occupy the dwelling under the deceased's will; or (c) If the CGT event was brought about the individual to whom the ownership interest passed as a beneficiary - that individual |
In this case you are an individual and the interest in the dwelling passed to you as a beneficiary in a deceased estate. The deceased acquired the ownership interest in the dwelling before 20 September 1985. You have stated that the deceased's spouse has lived in the dwelling since the deceased's passing and will remain living in the dwelling until such time as the dwelling is sold. As the conditions under section 118-195 of the ITAA 1997 have been satisfied, a capital gain or capital loss you make from a CGT event (the sale) can be disregarded, however you may not be entitled to disregard the full capital gain or capital loss upon the sale of the dwelling as part of the dwelling in the past was used to produce assessable income. That issue will now be addressed.
Subsection 118-190(4) of the ITAA 1997 states if a dwelling or 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, you ignore any use of the dwelling for the purpose of producing assessable income before the deceased's death if:
(a) The dwelling was the deceased's main residence just before the death; and
(b) It was not being used for that purpose just before the death, or any use for that purpose just before the death was ignored because of subsection (3).
In this case the dwelling passed to you as a beneficiary in a deceased estate. You can ignore the use of the dwelling to produce assessable income because the dwelling was the deceased's main residence just before their death and the dwelling was not being used to produce assessable income just before their death; therefore you are entitled to disregard the full capital gain or capital loss upon the sale of the dwelling.
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