Edited version of private advice

Authorisation Number: 1052166080222

Date of advice: 8 September 2023

Ruling

Subject: Deceased estate - passing of dwelling under the will

Question 1

Under the terms of the Deed of Family Arrangement, will a share of the dwelling pass to you as a beneficiary in a deceased estate for the purposes of section 128-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Under section 128-20 of the ITAA 1997, a CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset in a number of ways, including under a deed of arrangement if:

•                     the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and

•                     any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of your estate.

In your case, you will enter into a Deed of Family Arrangement with the executor and other beneficiary of the estate where you and the other beneficiary will each receive one half share of the residuary estate of the deceased which includes the dwelling. Further, the consideration given by you for the property will consist only of the variation or waiver of a claim to one or more other CGT assets that formed part of the estate.

Therefore, a share of the dwelling will pass to you as a beneficiary in a deceased estate for the purposes of section 128-20 of the ITAA 1997.

Question 2

Under the terms of the Deed of Family Arrangement, will a share of the dwelling at pass to you as a beneficiary in a deceased estate for the purposes of subsection 118-195(1) of the ITAA 1997?

Answer

Yes. Under subsection 118-195(1) of the ITAA 1997, a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, and

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

•                     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 separated from the deceased), or

(b)          an individual who had a right to occupy the property 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.

In your case, a share of the dwelling will pass to you as a beneficiary in a deceased estate for the purposes of section 128-20 of the ITAA 1997.

Therefore, a share of the dwelling will also pass to you as a beneficiary in a deceased estate for the purposes of subsection 118-195(1) of the ITAA 1997.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Your parent (the deceased) passed away.

Probate of the estate of the deceased was granted to your sibling as executor several months later.

The probate document lists a dwelling (the dwelling) as being part of the estate.

The deceased executed a Will which left the residuary of his estate equally to his three children including yourself.

Some years later the deceased added a codicil to the Will that removed you as a beneficiary of the estate.

Some years later one of your siblings passed away.

Your surviving sibling and executor has agreed to split the estate equally with you as per the original Will.

To enable the split to be given effect to, you, and your sibling as beneficiary and executor, propose to enter into a Deed of Family Arrangement (Deed).

The proposed Deed states among other things that:

•                     you have agreed to resolve all issues in dispute or doubt relating to the deceased's estate by entering into this Deed to vary the trust(s) created by the Will and the Codicil on the terms set out in this Deed and at the request of you and your sibling

•                     you and your sibling agree, and the executor acknowledges, that you and your sibling are each to receive one half share of the residuary estate of the deceased

You will pay your own legal costs in respect to the Deed and the estate, but you will not be making a payment to your sibling or the estate in regard to giving effect to the Deed or obtaining a share of the estate.

At the time of their death, the deceased lived in the dwelling as their main residence.

The dwelling was acquired after 1985 and has never been used to derive income.

The size of the dwelling and land is less than 2 hectares.

You became your parent's carer some years ago and have been living in the dwelling since then. You will continue to live in the dwelling until it is sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-195(1)

Income Tax Assessment Act 1997 section 128-20

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