Edited version of private advice

Authorisation Number: 1052101274113

Date of advice: 4 April 2023

Ruling

Subject: CGT - deceased estates

Question

Can you disregard any capital gain made on the disposal of the Property?

Answer

Yes.

It is accepted that you meet the conditions for the exemption under section 118-195 of the Income Tax Assessment Act 1997 (ITAA) to disregard the capital gain made on disposal of the Property because:

•         the deceased acquired the ownership interest in the Property on or after 20 September 1985;

•         the Property was the deceased's main residence just before the deceased's death and was not then used for the purpose of producing assessable income; and

•         the Property was, from the deceased's death until your ownership interest ended, the main residence of the spouse of the deceased immediately before the death.

This ruling applies for the following period:

Year ending XX/XX/20XX

The scheme commenced on:

XX/XX/20XX

Relevant facts and circumstances

The Deceased died in 20XX.

The executors of the estate obtained a grant of probate in relation to the will of the Deceased (The Executors).

Included in the assets of the estate was an interest in a residential property (the Property).

The Property is less than 2 hectares in size.

The Deceased acquired the Property on or after 20 September 1985.

The Property was the Deceased's main residence and was not being used to produce income at the time of his death.

IN 20XX, the Deceased executed a transfer of land transferring the property by way of gift from their name into the name of them and a relative (the Joint Tenant) as joint tenants.

On the same day, the transfer was registered with the Land Titles Office.

Several years later, the Deceased issued proceedings in the relevant court against the Joint Tenant.

Among other things, the Deceased was seeking orders that the transfer be set aside, and that the property be retransferred to him as sole proprietor.

Formal terms of settlement were issued.

The terms of settlement were approved by the relevant court in 20XX.

Clause 1(a)of the Terms of Settlement provided that 'the joint tenancy be severed into a tenancy in common with the Plaintiff to X percent of the property as tenant in common and the First defendant X percent of the property as tenant in common'.

The Deceased died prior to lodgment and registration of transfer of land with the relevant land titles office.

As a result, at the date of death of the Deceased, the property continued to be registered in the names of the Deceased and the Joint Tenant as joint proprietors.

The Deceased's solicitors underwent extensive communications with the relevant state revenue office and the Joint Tenant's solicitors, seeking a possible transfer duty exemption for the proposed transfer.

The state revenue office would not agree to an exemption being granted. They advised that they would not be able to process the proposed transfer of the interest without a court order.

A Deed of Variation was entered into by the Executors and the Joint Tenant.

Clause 2 of the Deed of Variation provided that:

The Joint Tenant will as soon as practicable hereafter apply to the Land Titles Office as surviving registered proprietor of the property to become the sole registered proprietor thereof provided always that they will then immediately thereafter lodge with the LTO a transfer of land transferring to the Executors of the estate a X% interest in the property to be held by them as tenants in common with the Joint Tenant as to the remaining X%

The Joint Tenant lodged the survivorship application which was registered with the land titles office on the same day. As a result, they became the sole registered proprietor of the property. However, they continued to hold X% of the beneficial interest in the property on trust for the Executors.

The Executors applied for transfer of duty concession.

The state revenue office accepted this application, and the transfer was lodged via Property Exchange Australia.

The transfer was subsequently registered, meaning that the correct ownership of the property was finally recorded on title.

The Property was listed for auction in 20XX and disposed some months later (settlement date).

Prior to the Deceased's death, their spouse cared for them at home until the time of their death. Their spouse continued to reside at the Property after the Deceased's death and up until shortly before the disposal of the Property.

The Deceased's spouse will exercise the absence choice from the date they vacated the Property until settlement.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-195

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