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Edited version of private ruling
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Ruling
Subject : Capital gains tax and deceased estate
Question and Answer
Is the Estate liable to pay Capital Gains Tax (CGT) on the disposal of property?
No.
This ruling applies for the following period
1 July 2010 to 30 June 2011
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's family member acquired the property pre 20 September 1985.
On xx xx xx the deceased's family member passed away.
The deceased was appointed as the Executor and Trustee of the family member's Will.
The deceased was the sole beneficiary of the Will.
On xx xx xx probate was granted.
Title to the property never transferred to the deceased.
The deceased continued to live in the property after the family member passed away.
On xx xx xx the deceased passed away.
On xx xx xx probate was granted.
On xx xx xx the property was sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 104-10(3)
Income Tax Assessment Act 1997 Subsection 104-10(5)
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Subsection 118-195(1)
Income Tax Assessment Act 1997 Subsection 128-15(2)
Income Tax Assessment Act 1997 Subsection 128-20(1)
Reason for Decision
A capital gain or capital loss may arise if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset). Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset is any kind of property, or a legal or equitable right that is not property.
Real estate is a CGT asset under this provision.
The most common CGT event happens if you dispose of an asset to someone else, under section 104-10 of the ITAA 1997 the disposal of a CGT asset causes a CGT event A1 to happen. You dispose of an asset when a change of ownership occurs from you to another entity. Subsection 104-10(3) of the ITAA 1997 provides that the time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs.
You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base.
Subsection 104-10(5) of the ITAA 1997 provides that the capital gain or capital loss you make on the disposal of an asset is disregarded if you acquired the asset before 20 September 1985.
Division 128 of the ITAA 1997 contains rules that apply when an asset owned by a person just before they die, passes to their legal personal representative or to a beneficiary in a deceased estate.
Subsection 128-15(2) of the ITAA 1997 provides that your deemed date of acquisition of property from a deceased estate, is the date of the deceased's death.
Regardless of the actual date that legal title in the property passed to you, for capital gains tax purposes you are considered to have acquired the property in question on the date of the deceased's death.
Subsection 128-20(1) of the ITAA 1997 provides that a CGT asset passes to a beneficiary in a deceased estate if the beneficiary becomes the owner of the asset:
· under a will, or that will varied by a court order;
· by operation of an intestacy law, or such a law as varied by a court order; or
· under a deed of arrangement where:
a. the beneficiary entered into the deed to settle a claim to participate in the distribution of the estate; and
b. any consideration given by the beneficiary for the asset consists only of a variation or waiver of a claim to one or more other assets that formed part of the estate.
118-195 Dwelling acquired from a deceased estate
(1) A capital gain or loss you make from a CGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest
Item |
1 of these items is satisfied |
And also one of these items |
1 |
the deceased acquired the ownership interest on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income |
your ownership interest ends within 2 years of the deceased's death
|
2 |
the deceased acquired the ownership interest before 20 September 1985 |
the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:
(a) the spouse of the deceased immediately before the death; or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary that individual |
In certain circumstances, a capital gain or loss from a CGT event that happens in relation to a dwelling may be disregarded if the taxpayer is an individual and received their interest in the dwelling as a beneficiary of a deceased estate.
Where the asset was a pre-CGT asset of the deceased, the exemption applies if the taxpayer disposes of the dwelling within 2 years of the deceased's death or, if not, if the dwelling was used between the date of death and its disposal as the main residence of the beneficiary, the deceased's spouse or an individual having a right of occupancy under the will.
The deceased received the dwelling as a beneficiary of a deceased estate and the dwelling was the deceased's main residence until its disposal. Therefore, the CGT event can be disregarded.