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Edited version of private ruling
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Ruling
Subject: Deceased estate -dwelling
Questions and answers
Are you entitled to a full main residence exemption on an inherited property you sold following the death of a life tenant?
No
Are you entitled to a partial main residence exemption on an inherited property you sold following the death of a life tenant?
Yes
This ruling applies for the following period
30 June 2010
The scheme commenced on
1 July 2008
Relevant facts and circumstances
The dwelling was originally acquired before 20 September 1985
The owner of the dwelling died after 20 September 1985
The Last Will and Testament of the deceased created a life tenancy for their spouse.
The spouse occupied the dwelling until their death
The dwelling remained unoccupied after the spouse's death.
The dwelling was sold within a year of the spouse's death
The dwelling was never used for income producing purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997
Section 118-195
Section 118-120
Reasons for decision
The deceased died after 19 September 1985, any asset forming part of their estate which ``passes'' to you is deemed to have been acquired on the date of death.
Where the dwelling was, immediately before death, the deceased's sole or principal residence and was not used for the purpose of gaining or producing assessable income, the first element of the dwelling's cost base is the market value at the date of death. The first element of the cost base is the market value of the dwelling at the deceased's date of death because the asset was acquired by the deceased before 20 September 1985.
Full exemption for beneficiaries of deceased estates
There is a full CGT exemption on an inherited dwelling for any capital gain or loss that is made from a relevant CGT event happening if:
(1) the trustee's or beneficiary's ownership interest ends within two years of the deceased's death, or
(2) from the time of the deceased's death until the trustee's or beneficiary's ownership interest ends, the dwelling was the main residence of one or more of the following:
· the spouse of the deceased immediately before death (except a spouse living permanently and separately apart from the deceased)
· an individual who had a right to occupy the dwelling under the deceased's will, or
· if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.
If the above full exemption for beneficiaries of deceased estates under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) does not apply (because the conditions of that section are not satisfied), the beneficiary or trustee may be entitled to a partial exemption under section 118-200 of the ITAA 1997.
In your case, the full CGT exemption does not apply as your ownership interest ended more than 2 years after the deceased's death. The property was occupied by the deceased's spouse up to their date of death, following the spouse's date of death, the property remained unoccupied for a few months and therefore was no the main residence of a listed person. You are entitled to a partial exemption.
A partial exemption is available to you as an individual. Generally, the partial exemption is calculated by working out the number of non-main residence days as compared to the total ownership days that are relevant for main residence exemption purposes.
Interest in dwelling acquired by the deceased before 20 September 1985
The formula applied to calculate the capital gain or capital loss is:
CG or CL amount |
× |
Non-main residence days |
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The CG or CL amount is the capital gain or capital loss the taxpayer would have made from the CGT event in the absence of Subdivision 118-B of the ITAA 1997.
Non-main residence days is the number of days from death until the taxpayer's ownership interest ends when the dwelling was not the main residence of someone entitled to occupy the dwelling under the will (in your case the deceased's spouse)
Total days is the number of days from the death until the ownership interest of the taxpayer (ie the beneficiary or the trustee) ends.