Edited version of private advice

Authorisation Number: 1052238848629

Date of advice: 11 April 2024

Ruling

Subject: Deceased estate - main residence exemption

Question 1

Is the Estate of Person A entitled to disregard the capital gain upon the disposal of its ownership interest in the Property pursuant to section 118-195 item 2 column (a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. From Person A's date of death until the ownership interest was disposed, the Property was occupied by Person A's spouse.

Question 2

Will the Commissioner exercise the discretion under section 118-195 of the ITAA 1997to allow an extension of time for the Estate of Person B to dispose of its ownership interest in the Property and disregard the capital gain on the disposal?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'.

This ruling applies for the following period:

XX XX 20XX - XX XX 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

Person A and Person B purchased the Property pre-1985 as joint tenants.

They converted their ownership interest in the Property to tenants in common in 19XX.

Person B passed away on DD MM 19XX.

Probate was granted on DD MM 19XX.

Person B's will granted Person A life tenancy in their interest in the Property.

Person B's will also states that upon Person A's death, Person B's share in the Property is to be sold and the proceeds to be used for the education and general advancement of their children, Person C and Person D, until the age of 21 after which the proceeds and any accrued interest is to be paid to them in equal shares.

Person A remarried Person E.

Person A passed away on DD MM 20XX.

Probate was granted on DD MM 20XX.

Person A's will appointed Person E as the executor of their estate.

Person A's will granted Person E a life tenancy in the property.

In the event the Property was sold, Person A's will bestowed their share of the Property to Person E.

On DD MM 20XX, Person E became the registered proprietor for Person A's share of the Property and the legal representative for Person B's share of the Property.

The Property was sold on DD MM 20XX.

Person E moved out of the property on DD MM 20XX.

Settlement occurred on DD MM 20XX.

The proceeds of the sale were distributed to the respective beneficiaries-half to Person E and a quarter each to Person C and Person D.

The Property has always been the main residence of the family. Initially by Person A, Person B, Person C and Person D. And then by Person A and Person E. After Person A's death, Person E continued to occupy the Property until it was sold.

The Property has never been used to produce assessable income.

Person E is the legal personal representative for the Estate of Person A and the Estate of Person B.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

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.

Application to your circumstances

Person E was the spouse of the deceased, Person A. The dwelling was Person E's main residence from the time of Person A's death to DD MM 20XX.

The Commissioner will exercise his discretion to provide a CGT exemption for the period between DD MM 20XX and the settlement date.

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