Edited version of private ruling

Authorisation Number: 1011771534436

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Ruling

Subject: Capital gains tax - inherited property

Question:

Will you be exempt from capital gains tax (CGT) when you sell the inherited property?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2011.

Year ended 30 June 2012.

The scheme commenced on

1 July 2009.

Relevant facts

You inherited a dwelling.

The dwelling was the deceased's main residence before their death.

You moved into the dwelling as soon as practicable.

You are not making an absence choice for another main residence.

You intend to use the dwelling as your main residence until you sell it.

Relevant legislative provisions

Income Tax Assessment Act Section 104-10
Income Tax Assessment Act Section 118-195

Reasons for decision

Capital gains tax:

Capital gains tax (CGT) is the tax you pay on a capital gain. You make a capital gain or a capital loss as a result of a CGT event happening to an asset in which you have an ownership interest. Selling assets such as real estate or shares are the most common way you can make a capital gain or capital loss.

A capital gain is the difference between the capital proceeds (what you receive from the sale) of the asset and the asset's cost base (what you paid or the asset's value when you acquired it). You make a capital loss if your cost base is greater than your capital proceeds. CGT is not a separate tax, it is included as part of your income tax.

Sale of the deceased's main residence that you inherited

You disregard any capital gain or capital loss you make when a CGT event happens to the dwelling or your ownership interest in the dwelling if:

· One of the conditions 1 or 2 below is met, and the dwelling passed to you as a beneficiary, and just before the date the deceased died it was their main residence and was not being used to produce income.

Condition 1

You disposed of your ownership interest within two years of the person's death - that is, if the dwelling was sold under a contract and settlement occurred within two years. This exemption applies whether or not you used the dwelling as your main residence or to produce income during the two-year period.

Note: The ATO has no discretion to extend this two-year period.

Or

Condition 2

From the deceased's death until you disposed of your ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:

· a person who was the spouse of the deceased immediately before the deceased's death. (but not a spouse who was permanently separated from the deceased)

· an individual who had a right to occupy the home under the deceased's will, or

· you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

In this case you moved into the dwelling as soon as practicable after inheriting it. Since moving into the dwelling it has been your main residence and has not been used to produce assessable income. As condition two above has been met, you will be exempt from CGT on the inherited dwelling when you sell it.

Please note: The provisional tax does not exist. It has been replaced with a pay as you go (PAYG) system.

Pay as you go:

The PAYG system is used for paying instalments during the income year towards your expected income tax liability for any business and investment income. 

Your actual tax liability is calculated when your annual income tax return is processed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund. 

If you are required to pay PAYG instalments the ATO will notify you of an instalment rate. The ATO calculates your instalment rate from the information in your most recent income tax return.

PAYG instalments are generally paid quarterly. Some taxpayers in specific occupations pay two instalments whereas other taxpayers have an annual instalment option.

A taxpayer who has been given an instalment rate by the Commissioner is liable to pay quarterly PAYG instalments, one for each quarter of the income year, unless the taxpayer is eligible to pay an annual instalment and chooses to do.

If you fail to pay some or all of an instalment by the due date, the general interest charge (GIC) will become payable on the amount that remains unpaid from the due date of the PAYG instalment until the instalment and any associated GIC has been fully paid. In certain circumstances the Commissioner may remit some or all of the GIC.