Edited version of private ruling

Authorisation Number: 1011768468358

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Ruling

Subject : Capital gains on an inherited pre-CGT property

Question and answer

Are you assessed for capital gains on an inherited pre-CGT property you will sell following end of a life tenancy?

Yes

This ruling applies for the following period

30 June 2012

The scheme commenced on

1 July 2010

Relevant facts and circumstances

The dwelling was originally acquired before 20 September 1985.

The owner of the dwelling died after 20 September 1985.

The deceased occupied to dwelling up to their date of death.

The Last Will and Testament of the deceased created a life tenancy for their spouse.

The spouse vacated the dwelling as they have moved into a high-care medical facility in the last 12 months.

The spouse continues to use the property as their main residence.

The dwelling will remain unoccupied in the lead up to its sale.

The dwelling was never used for income producing purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997
Section 104-10
Section 118-110
Section 118-145
Section 118-195
Section 128-15

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 applies as the dwelling is not being used to produce income and will be deceased's spouse main residence up to the date your ownership interest ends.