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Edited version of your written advice
Authorisation Number: 1051316265494
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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
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Date of advice: 11 December 2017
Ruling
Subject: CGT-deceased's estate
Question 1
Will you be able to disregard any capital gain or loss from the disposal of the deceased’s main residence?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 201Y.
The scheme commences on:
1 July 201X.
Relevant facts and circumstances
S acquired a dwelling overseas before 20 September 1985.
S passed away in 201X (the deceased).
The dwelling was the deceased’s main residence before the deceased passed away (the dwelling).
The deceased remained a non- resident of Australia.
You are an Australian resident and beneficiary of the deceased’s estate.
P and Q are the executors of the deceased’s estate.
You and your siblings P, Q and R are beneficiaries of the deceased’s estate.
The trustee of the deceased’s estate attempted to sell the deceased’s dwelling after obtaining two valuations in 201X.
The dwelling was arranged to be listed for sale in late 201Y.
Before the dwelling could be listed for sale, Q negotiated with the executors and beneficiaries of the deceased’s estate to purchase the deceased’s dwelling for the equivalent of US $B00,000 via entering into an instalment arrangement.
Q desired to keep the deceased’s dwelling in the family and to purchase the dwelling on behalf of Q’s family.
In an email between Q to P in 201Y, the executor and beneficiaries agreed to transfer the deceased’s house to Q, subject to an agreed amount of $B00,000 being payable in instalments over a X year period contingent on the sale of the house owned by Q’s spouse, Q’s spouse being able to move into the dwelling in early 201Y and Q guaranteeing the repayment of the instalments should title transfer to Q’s spouse.
Q was a beneficiary of the deceased’s estate and was entitled to a share to the deceased’s dwelling to the value of US$C00,000 (market value). As part of the agreement to purchase the deceased’s dwelling, Q was responsible for making instalment payments to the value of US$B00,000 to the trustee of the deceased’s estate.
Q has made a number of instalments towards the purchase price of the deceased’s dwelling.
Title to the deceased’s dwelling passed to Q in 201Y.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 Section 104-15
Income Tax Assessment Act 1997 section 118-195
Reasons for decision
Capital gain tax (CGT) B1 occurred in 201Y when the beneficiary of the deceased estate, Q obtained the right to the use and enjoyment of the deceased’s dwelling. Since the dwelling of the deceased was acquired before 20 September 1985 and disposed of within two years of the deceased’s passing, any capital gain or loss can be disregarded.
Detailed reasoning
You make a capital gain or capital loss as a result of a CGT even happening
If you dispose of a CGT asset to someone else, the CGT event happens when you enter into the contract for disposal. If there is no contract, the CGT event generally happens when your stop being the asset’s owner.
CGT event B1 (about use and enjoyment before title passes) in section 104-15 of the Income Tax Assessment Act 1997 (ITAA 1997) happens if you enter into an agreement under which the right to the use and enjoyment of a CGT asset you own passes to another entity and title in the asset will or may pass to the other entity at the end of the agreement.
The time of CGT B1 event occurs when the other entity first obtains the use and enjoyment of the asset. Therefore CGT event B1 will happen when the deceased’s dwelling passes to Q for the right and enjoyment of Q. That occurred when Q obtained the right to occupy the deceased’s dwelling in early 201Y.
The property was acquired by the deceased before 20 September 1985 and used by the deceased before their passing as their main residence, a full exemption will be available if the ownership interest ends within two year of the deceased’s death (section 118-195 of the ITAA 1997).
As the B1 event will happen within two years of the date of passing of the deceased and the other conditions are satisfied under section 118-195 of the ITAA 1997, any capital gain or capital loss that may arise when the dwelling was disposed to Q will be disregarded.
Under section 104-10 of the ITAA 1997 the disposal of a CGT asset causes a CGT event A1 to occur. However, if more than one CGT event can happen, you use the one that is most specific to your situation, in your case CGT event B1 is the relevant CGT event and the CGT event A1 that occurs at date of settlement will not trigger any CGT implications.
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