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Edited version of private advice
Authorisation Number: 1051538280686
Date of advice: 2 July 2019
Ruling
Subject: Capital gains tax - deceased estate - right to occupy
Question
Did the beneficiary have a right to occupy the property under the deceased's will?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts
The deceased acquired a dwelling. (The dwelling)
The deceased passed away in 20xx. (The deceased)
The dwelling was the deceased's main residence.
The dwelling was also occupied by 'A' who has a disability.
Probate was granted in 20xx.
The deceased's will directed that their estate be held on trust by the trustee for 'A', with any residue remaining on 'A's death to be split equally between the other children.
The trustee took the view that the will allows 'A' to reside at the property until their death.
The deceased and 'A' had planned to move into an assisted living facility in 20xx, however the declining health of the deceased prevented this from occurring.
'A' has occupied the dwelling with some assistance.
'A' would now like to move into a new unit in a local assisted living facility.
The unit will be available to be occupied by 20xx.
The trustee will sell the dwelling and use the proceeds to acquire the new unit and for any ongoing expenses.
The sale by the trustee will result in a capital gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-195
Reasons for Decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Section 118-195 of the ITAA 1997 provides that a capital gain or capital loss made from the disposal of a dwelling is disregarded where:
· the property was acquired by the deceased 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, and
· the dwelling is the main residence of a person who has been given a right to occupy the dwelling or a life tenancy under the deceased's will from the deceased's death until the ownership interest ends.
In this case, the property was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. The deceased's child then continued to live in the property after the deceased's death.
ATO ID 2003/109 discusses when an individual has a right to occupy a dwelling and states:
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).
In this case, the beneficiary was a resident of the property at the date of the deceased's death. The deceased's will stated that their estate is to meet the maintenance and benefit of the beneficiary during their life.
While it was not mentioned in the will that a "right to occupy" of the property was given to the beneficiary, it can be ascertained from the words of the will that the beneficiary lived in the property in accordance with the terms of the will.
Therefore, as the beneficiary did have the right to occupy the dwelling and they continued to treat the property as their main residence the capital gain made on disposal of the property can be disregarded.
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