Edited version of private advice

Authorisation Number: 1052155253386

Date of advice: 15 August 2023

Ruling

Subject: CGT - deceased estate

Question

Is the capital gain or loss you made from the disposal of your ownership interest in the dwelling disregarded under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Having considered the relevant facts and that you choose to treat the dwelling as your main residence, the Commissioner will allow you a full Capital Gains Tax (CGT) exemption as you have satisfied at least one of the items in column 2 and at least one of the items (item (c)) in column 3 of the table in subsection 118-195(1) of the ITAA 1997.

As you were a co-owner of the dwelling, the CGT event was brought about by you as an individual to whom the ownership interest passed as a beneficiaryof your late parent's estate.

Dwelling acquired from a deceased estate

Section 118-195 of the ITAA 1997 provides a full CGT exemption for capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied.

A full exemption is available if at least one of these items in column 2 of the table in subsection 118-195(1) of the ITAA 1997 is satisfied:

•         the deceased acquired the ownership interest 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

•         the deceased acquired the ownership interest before 20 September 1985

Also, one of these items in column 3 of the table:

•         the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:

a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or

b) an individual who had a right to occupy the dwelling under the deceased's will; or

c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary- that individual

or

•         your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner.

Treating former home as main residence

Your main residence (your home) is generally exempt from CGT.

Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence:

• for up to 6 years if you used it to produce income, such as rent (sometimes called the '6-year rule')
• indefinitely if you didn't use it to produce income.

During the time that you treat the property as your main residence after you stop living in it:

• It continues to be exempt from CGT (the same as if you were still living in it, even if you start renting it out after you leave).

You can't treat any other property as your main residence (except for up to 6 months if you are moving house).

You choose to treat a property as your main residence in the income year a CGT event happens to the property when preparing your tax return - for example, the year you sell it based on the contract sale date, not the settlement date.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on xx Month 20xx

The deceased left a will dated xx Month 19xx

The deceased's children (child A, child B and child C) were made equal beneficiaries

Child A was made executor

Probate was granted on xx Month 20xx

The dwelling was less than two hectares in size

The dwelling, Property, was purchased in 19xx by the deceased's spouse

The deceased's spouse passed away on xx Month 19xx

The deceased became the full owner of the dwelling on xx Month 19xx

The dwelling was the main residence of the deceased before passing

The deceased had knee surgery in 20xx and went to stay with child A in city to recover

The deceased's health declined from 20xx while staying with child A, which included dementia

The deceased had a stroke in 20xx and passed away three weeks later in a city Hospital

The deceased was not in a clear mind capacity to make any legal decisions which included changes to the will

Child B lived in the dwelling since 19xx until going into palliative care in Month 20xx

The deceased verbally told child A, child B and child C that child B is to remain living in the dwelling indefinitely. This was not noted in the will

Child B has been ill with three different cancers since 20xx, and has been looked after by cancer services at city and city Hospitals

At the time of the deceased's passing, child B was on the aged pension

The deceased travelled from city to city on xx Month 20xx until xx Month 20xx to assist with child B's care, find a care facility for child B and clean the dwelling for sale

The dwelling needed to be sold as soon as possible to assist with the finances for child B's care

Child A, child B and child C as beneficiaries, sold the dwelling as tenants in common

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

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