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Edited version of your written advice
Authorisation Number: 1013103190399
Date of advice: 6 October 2016
Ruling
Subject: Capital gains tax - deceased estate - main residence - disposal
Question: 1
Is any capital gain or capital loss made on the disposal of the deceased’s property disregarded?
Answer:
No.
Question: 2
Are you entitled to a partial main residence exemption upon disposal of the deceased's property?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2017
The scheme commenced on:
1 July 2016
Relevant facts:
The deceased acquired a dwelling (The dwelling).
The deceased passed away in 2009. (The deceased.)
The dwelling was occupied by the spouse of the deceased, (‘A’).
‘A’ passed away in 2015.
The deceased had a mortgage registered on the dwelling.
The mortgage has not been discharged.
Title to the dwelling was not transferred to ‘A’.
The estate of the deceased has not been fully administered.
Contracts for the sale of the property were exchanged in 2016.
The sale of the dwelling proceeded with the mortgage remaining on the title.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 118-200
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision:
A CGT event A1 happens if you dispose of a CGT asset. You dispose of a capital gains tax (CGT) asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. Further, the capital gain or capital loss is made at the time of the event.
A capital gain is made if the amount received from the disposal exceeds the cost base of the CGT asset.
Main Residence - Full Exemption
If a deceased person's dwelling devolves to you as the trustee of their estate, you may be exempt or partially exempt when a CGT event happens to it.
Generally, a trustee can disregard a capital gain or capital loss made on the disposal of the deceased's main residence if the trustees' ownership interest ends within two years of the deceased's death or from the deceased's death until it is disposed of, if it was the main residence of one or more of:
● the spouse of the deceased immediately before the deceased's death, or
● an individual who had a right to occupy the dwelling under the deceased's will.
In your case, your ownership interest did not end within the two years of the deceased's date of death, and it was not the main residence of an individual who had a right to occupy the dwelling under the deceased's will.
While their spouse did occupy the dwelling, it was not their main residence for all of your ownership period; therefore, you are not entitled to the full main residence exemption.
In your situation, a partial exemption is available as the spouse of the deceased occupied the dwelling for part of your ownership period.
You calculate the effect of the partial main residence exemption on any capital gain or capital loss on the dwelling as follows:
Capital gain or capital loss x non – main residence days divided by total days
Where, the capital gain is calculated as the difference between the capital proceeds and the cost base of the dwelling.
Where, non-main residence days are the total number of days from the death of the surviving spouse until your ownership interest ends.
Where total days are the number of days in the period from the deceased’s death until your ownership interest ends.
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