Edited version of private advice

Authorisation Number: 1051530168425

Date of advice: 26 August 2019

Ruling

Subject: Capital gains tax: deceased estates: right to occupy

Question

Is the capital gain made on the disposal of the taxpayer's ownership interest in the property disregarded in full under section 118-195 of the Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The deceased died in 2011.

At the time of their death, the deceased owned the property.

The property was acquired prior to the introduction of CGT.

The deceased had two beneficiaries.

At the time of their death, the deceased was living in a nursing home and Beneficiary 1 was living in the property.

Probate was granted on Month 20xx.

In accordance with the Will, the property was transferred into the beneficiaries' names on Month 20xx.

The property was sold on Month 20x5 and settlement occurred on Month 20x6.

Beneficiary 1 continued to reside in the property from the deceased's death until the sale of the property.

The will provides that each residual beneficiary is entitled to their share 'for his own use and benefit absolutely.'

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 subsection 128-15

Reasons for decision

Subsection 128-15(4) of the ITAA 1997 provides that a deceased person's beneficiary is taken to have acquired a dwelling for its market value at the date of death. When the dwelling is sold, any capital gain or loss that arises may be disregarded if section 118-195 of the ITAA 1997 is satisfied.

Section 118-195 of the ITAA 1997 provides that a full exemption will apply where a CGT event happens to a dwelling (or an interest in it) owned by a trustee or individual beneficiary of a deceased estate if the dwelling was a pre-CGT asset of the deceased and any of the following occur:

·   The trustee's or beneficiary's ownership interest in the dwelling ends within two years of the deceased's death; or

·   The dwelling was the main residence of one or more of the following persons from the deceased's death until the CGT event:

·   A surviving spouse;

·   An individual with a right to occupy the dwelling under the deceased's will; or

·   A beneficiary to whom the ownership interest in the dwelling was passed.

In your circumstances

Your ownership interest in the deceased's dwelling ended more than two years after the date of the deceased's death. Therefore, a full main residence exemption will only be available if the dwelling was the main residence of one of the specified individuals.

The dwelling was occupied by Beneficiary 1. As you did not occupy the property, any capital gain or loss will only be disregarded if Beneficiary 1 had a right to occupy the dwelling under the deceased's Will.

An individual would be considered to occupy a dwelling under the deceased's Will if it was in accordance with the terms of the Will. This would also be the case if it was in pursuance of the Will or under the authority of the will (see Evans v Friemann (1981) 53 FLR 229 at 238).

The will gives you and Beneficiary 1 legal ownership of the dwelling; it does not give you a right to occupy. Accordingly, the capital gain made on the disposal of the dwelling is not disregarded.

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