Edited version of private advice

Authorisation Number: 1052343753884

Date of advice: 09 January 2025

Ruling

Subject: Capital gains tax

Question 1

Are the trustees of the Estate eligible for a partial main residence exemption under section 118-210 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the disposal of the property?

Answer 1

Yes.

We have considered your circumstances and Taxation Determination TD 1999/74 Income tax: capital gains: in what circumstances does a trustee of a deceased estate acquire an ownership interest in a dwelling 'under the deceased's will' for the purposes of subsection 118-210(1) of the Income Tax Assessment Act 1997?. TD 1999/74 states that the connection required between the trustee's acquisition and the deceased's will is not a strict one; it is sufficient if the acquisition is in pursuance of the will or under the authority of the will. In your case, we accept that the property was acquired under the will by the trustees for occupation by an individual for the purposes of subsection 118-210(1) of the ITAA 1997.

As the property was the main residence of the individual for part of the trustees' period of ownership, they are entitled to a partial main residence exemption under section 118-210 of the ITAA 1997.

Question 2

Can section 118-145 of the ITAA 1997 apply in conjunction with section 118-210 of the ITAA 1997?

Answer 2

Yes.

Section 118-145 of the ITAA 1997 provides that if a dwelling was the main residence of an individual, they may continue to treat it as their main residence after it ceases to be their main residence. The provision does not require the individual to have an ownership interest in the dwelling. Therefore, where a property was acquired under a will by a trustee for occupation by an individual for the purposes of section 118-210 of the ITAA 1997, and subsequently that individual moves out of the property, it may continue to be treated as the main residence of that individual pursuant to section 118-145 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Deceased passed away a number of XX ago.

At the time of their passing, they owned and lived in the Original Residence together with their children A and B.

In relation to the Original Residence the Deceased's will provided that it would be held on trust to permit A and B to have its use and enjoyment.

After a period of time following the Deceased's passing, A married and moved out of the Original Residence.

From this time, B enjoyed sole occupation of the Original Residence.

Following A ceasing to live in the Original Residence, the trustees of the Deceased's estate (the 'Estate') obtained an opinion from Counsel which advised that the Will results in A and B having an equitable interest in the Original Property as joint tenants, going beyond a mere right of residence. The cessation of residence by either did not involve the abandonment of any right of enjoyment and the property could be let in whole or in part with A and B entitled to receive the net rents in equal shares.

B continued to live in the Original Residence for many years. However, by 20XX, the Original Residence had fallen into disrepair and B was finding it difficult to continue living there. As a result, B requested that the property be sold and that the proceeds of sale be used to purchase another residence.

Due to B's request, advice was obtained from Counsel regarding whether A would have any right to require that half of the net proceeds of sale should be invested for A's benefit. The advice obtained confirmed that (as at that time):

a.              The land is settled land.

b.              Section 38(a) of the Settled Land Act gives the life tenants the power to sell the land with the consent of the trustees.

c.              Under section 78(4) of the Act, the proceeds of sale of settled land are held in the same trusts as the land itself. Any replacement residence purchased with the proceeds of sale of the Original Residence will be held on trust for it to be used and occupied by both A and B. If the proceeds of sale produce more than is required to purchase a replacement residence, the surplus will need to be invested by the trustees with the two life tenants jointly entitled to the resulting net income.

The Original Residence was sold later during the 20XX calendar year and the Estate acquired a replacement property (the property).

B commenced living in the property from settlement of the purchase contract. A continued to live independently.

B continued to live in the property from when it was acquired until approximately XX/20XX when B went into care.

.        Following ceasing to live in the property, further advice from Counsel was sought from the then trustees of the Estate. In summary the advice provided that:

a.              The departure from the property by A and B does not crystallise the date of distribution. The date of distribution only occurs on the death of the survivor of A and B.

b.              The property may be rented during life tenancy, with A and B entitled to the rent, by way of income from the life interest.

c.              Any income from the investment or application of the proceeds of the sale of the property is for the benefit of A and B until the date of distribution, after which the proceeds of sale, together with the income therefrom forms part of the residuary estate.

The property commenced being rented to third parties in XX/20XX.

B passed away a couple of XX later.

In XX/20XX, the property ceased to be rented and it was determined that the property had become uninhabitable and should be sold.

The property was sold for $XXX,XXX on XX/XX/20XX, with settlement occurring on XX/XX/20XX.

A capital gain was derived by the Estate in relation to the disposal of the property.

During the income year ended 30 June 20XX, ignoring the capital gain from the property, the Estate derived income to which A was presently entitled. A was not made specifically entitled to any amount of the Estate's income.

The Deceased, A, B and the Estate have always been residents of Australia for taxation purposes.

A is not under any legal disability.

The property is less than XX XX in area.

B and/or the trustee of B's estate chose to continue to treat the property as B's main residence for the period after B moved out until their passing.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-210

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