Edited version of private ruling

Authorisation Number: 1011775198070

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Ruling

Subject: Capital gains tax - Deceased estate and main residence exemption

Question: Will you receive the benefit of the capital gains tax (CGT) exemption provided for in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of the property?

Answer: Yes.

This ruling applies for the following period<s>:

Income year ended 30 June 2011

The scheme commences on:

1 July 2001

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased and their spouse occupied a property as their main residence from the mid 19XX to 20XX. The property is less than two hectares in area.

The deceased did not have any ownership interest in the property. Their spouse was the legal owner.

In 20XX they both left the property. The deceased's spouse was required to reside in a Nursing Home and the deceased rented a room nearby which enabled the deceased to visit their spouse regularly.

The deceased often conveyed their intention to return to the property to their children.

Soon after the deceased and the spouse left the property, it was rented out on an informal basis to neighbours and then it was rented through real estate agents for a two year period.

The deceased's spouse passed away in 20XX and, under the terms of the Will, the property passed to the deceased so that they acquired their ownership interest in the property at this point of time.

For two and a half years, the property either remained empty or was occupied by various family members on an informal basis in case the deceased was able to move back in.

By mid 20XX it became clear that the deceased would not be able to move back into the property.

The property has since been rented out on a monthly tenancy.

The deceased passed away early in this income year.

The property will be sold in the same income year.

Executors for the deceased's estate have made the choice for the deceased so that they would be able to continue treating the property as their main residence for the period that they were absent from late 20XX to early this income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10,
Income Tax Assessment Act 1997 Section 118-115,
Income Tax Assessment Act 1997 Section 118-120,
Income Tax Assessment Act 1997 Section 118-125,
Income Tax Assessment Act 1997 Section 118-130,
Income Tax Assessment Act 1997 Section 118-145 and
Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

You will receive the benefit of the CGT exemption provided for in Subdivision 118-B of the ITAA 1997 on the sale of the property.

Detailed reasoning

Section 118-195 of the ITAA 1997 provides an exemption from CGT in relation to a property if all of the following conditions are met:

· The capital gain or loss arises due to CGT event A1 happening

· There is a dwelling on the property when it is sold

· The property is less than two hectares in area

· The owners sell the property as the Executors of the deceased estate

· The deceased owned the property when they passed away

If the deceased acquired the property on or after 20 September 1985 - the dwelling on it was the deceased's main residence just before they passed away and was not then being used for the purpose of producing assessable income, and

The Executors' ownership of the property ends within two years of the date that the deceased passed away.

You, as Executors, will receive the benefit of the CGT exemption provided for in Subdivision 118-B of the ITAA 1997 on the sale of the property because all of these conditions are met.

The effect of the absence choice

The dwelling on the property stopped being the deceased's common law main residence when they moved out of it with their spouse in 20XX.

The Executors have made the choice to continue to treat the dwelling on the property as the deceased's main residence from 20XX on their behalf. The Executors can continue to apply this choice indefinitely unless the deceased uses the dwelling on the property to earn assessable income. The choice will terminate once the deceased has used the dwelling on the property to produce assessable income for six years.

The period from 20XX to 20XX will not count toward the six year limit as the deceased did not use the dwelling on the property to earn assessable income. Their spouse, as owner of the property, was using the property to earn assessable income during this period.

The remainder of the initial two year rental period will count toward the six year limit as the deceased was the owner of the property for CGT purposes and the dwelling on it was being used to earn assessable income.

The following two and a half year period will not count toward the six year limit as the deceased did not use the dwelling on the property to earn assessable income during this period.

The final five year period from mid 20XX will count toward the six year limit as the deceased was the owner of the property for CGT purposes and the dwelling on it was being used to earn assessable income.

As the total period of assessable income producing use by deceased is less than six years, they can continue to treat it as their main residence for the whole of the period that they were absent from it.

Consequently, the dwelling on the property will be treated as the deceased's main residence when they passed away.

Note: you ignore income use during the period that an absence choice is in effect when working out your entitlement to the main residence exemption.