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Edited version of private ruling
Authorisation Number: 1011814317100
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Ruling
Subject: CGT - deceased estate, demolition of main residence and disposal of vacant land
In 1983 the deceased purchased a property (the property) solely in their name.
The property was the main residence of the deceased and their spouse.
In 2000 the deceased passed away.
Under the deceased's Will, there are a number of beneficiaries.
You are a beneficiary of the estate.
The property was transferred into the beneficiaries' names in approximately mid 2001.
The deceased's spouse resided in the property until mid 2006 when they moved into a rental property.
The deceased's spouse has chosen to continue to treat this property as their main residence.
The property has not been used to produce assessable income.
The property remained vacant until the dwelling was demolished in late 2006.
Prior to the disposal of the property a planning application was lodged and subsequent approval was granted for the construction of specified number of units on the property.
Mid 2010, the property was disposed of. The planning approval was included with the disposal of the property.
You have lodged your income tax return but you have not included your share of the capital gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 128-15
Income Tax Assessment Act 1997 Section 118-160
Reasons for decision
The most common capital gains tax (CGT) event is CGT event A1, which occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal of the asset or if there is no contract when the change of ownership occurs.
A CGT event A1 occurred when you disposed of your interest in the property - vacant land.
Deceased estate
If you acquire an asset owned by a deceased person as their legal personal representative or beneficiary, you are taken to have acquired the asset on the day the person died.
If the deceased person acquired their asset before 20 September 1985, the first element of your cost base and reduced cost base is the market value of the asset on the day the person died.
You are taken to have acquired your interest in the property on deceased's date of death for its market value on that date.
Inherited main residence
If you inherit a deceased person's dwelling or share of it, you may be exempt or partially exempt when a CGT event happens to it.
There are a number of conditions that must be met before a beneficiary is entitled to a full or partial main residence exemption on disposal of their interest in the deceased's dwelling.
Where a dwelling is accidentally destroyed and you then dispose of the vacant land on which it was built, you can choose to apply the main residence exemption as if the dwelling had not been destroyed and continued to be your main residence.
The main residence exemption does not apply to the disposal of vacant land where you have demolished the existing dwelling for future development works such as the construction of units.
The main residence exemption does not apply to your interest in the property as you and the other beneficiaries disposed of vacant land as the dwelling was demolished to allow for the future construction of the units. The normal CGT rules now apply to the disposal of the property.
Therefore, you cannot disregard your share of the capital gain made on the disposal of the property.
You can use the discount method to calculate your capital gain as you meet all relevant criteria. The discount percentage for individuals is 50%.
For more information on how to calculate your capital gain please see the enclosed information sheet. This information has been taken from the Guide to capital gains tax 2009-10 (NAT 4151-6.2010).
You will need to include your share of the capital gain made in the relevant income tax return.
You can either write to the Australian Tax Office to request an amendment to include the capital gain in the relevant income tax return.
In your letter you need to provide the following:
· your name
· your address
· telephone number, and
· the details of the capital gain made. The capital gain amount is included at item 18 of the supplementary section of your income tax return.