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Edited version of private ruling
Authorisation Number: 1011599988041
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Ruling
Subject: Capital gains tax and the sale of property acquired from a deceased estate
Question and Answer
Is any capital gain or capital loss that you made on the sale of the property disregarded?
Yes
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The deceased was a non resident for Australian taxation purposes and they resided in an overseas country.
Some time after 20 September 1985 they purchased a property in Australia (herein referred to as the property). Whenever they visited Australia they resided in the property.
They initially commenced residing in the property after they had furnished it which was shortly after its purchase.
The deceased did not fully abandon his overseas property however they brought important documentation, correspondence and memorabilia to the property.
They visited Australia for periods which averaged a number of weeks each time and it was their intention to stay temporarily in Australia and then return to the overseas country.
You have been living in the property as your main residence since its original purchase until its sale. The deceased gave you the right to occupy the property.
For a period of time one of the bedrooms in the property was rented out. However this ceased and the property has not been used to produce income for several years.
The deceased was diagnosed with cancer.
They left the overseas country uncertain as to what they should do except that they would seek medical treatment in Australia.
They made the property their main residence. They underwent treatment for their cancer in an Australian hospital.
The deceased returned to the overseas country for further hospital. Their cancer at first went into remission, but later relapsed.
The deceased prepared their Will after returning to the overseas country. Their address listed on their Will was that of the Australian property.
The deceased passed away.
You are the executor of the deceased's estate and you have been granted probate. You are also a beneficiary. The other beneficiaries of the estate are non residents for Australian taxation purposes.
You obtained a retrospective market valuation of the property on the date of the deceased's death.
From the date of the deceased's death until the sale of the property, the property has not been used for income producing purposes.
Less than two years after the deceased's death, you signed a contract for the sale of the property in your capacity as executor of the estate. You intend to distribute the net proceeds from the sale to the beneficiaries shortly after settlement.
You, in your capacity as executor of the deceased's estate, are making the choice on his behalf that they continued to treat the property as their main residence after they ceased residing in it.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10,
Income Tax Assessment Act 1997 Section 118-110,
Income Tax Assessment Act 1997 Section 118-145 and
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
Generally, where the deceased acquired a property after 20 September 1985, any capital gain or capital loss that an executor or beneficiary makes on its disposal is disregarded provided that;
· the property was the deceased's main residence just before they died,
· the property was not being used for income producing purposes at the date of death and
· the executor or beneficiaries ownership interest in the property ends within two years of the deceased's death.
In some cases, an individual can choose to treat a property as their main residence even though they no longer live in it. Where the property is not used to produce income, this choice can be made for an unlimited period. Where an individual has passed away, this choice can be made by the executor of their estate.
In your situation, the property became the deceased's main residence when they moved into it and commenced treatment in Australia.
They returned to the overseas country and passed away. In your capacity as the executor of their estate, you made the decision on their behalf that they would continue to treat the property as their main residence after they ceased residing in the property. The property was not used to produce income and therefore it continued to be the deceased's main residence until they passed away.
You sold the property less than two years after the deceased's death. Therefore any capital gain or capital loss that you made on its disposal is disregarded.