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Subject: capital gains tax - dwelling acquired from a deceased estate - life interest - disposal
Question: Will any capital gain made on the disposal of the deceased's dwelling be disregarded in accordance with section 118-195 of the Income Tax Assessment Act 1997?
Answer: Yes
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
The deceased passed away after 20 September 1985.
Included in the deceased's estate was a dwelling which had been acquired by the deceased before 20 September 1985.
The dwelling had been the deceased's main residence during most of their ownership period.
The deceased had been a resident in a nursing home at the time of their death.
The deceased's will provided that their children were named as the Trustees of their estate, Trustee A, Trustee B and Trustee C.
The deceased's will named their children as the beneficiaries of their estate.
The deceased's will provided Trustee C with a life tenancy in the dwelling, under which Trustee C could reside in the dwelling until Trustee C's death, or until Trustee C ceased to permanently live in the dwelling.
For the purposes of this ruling, the Trustees have made the absence choice in relation to treating the dwelling as the deceased's main residence from the date they became a resident of the nursing home until the date of their death.
The dwelling was transferred into the name of the Trustees as joint tenants a number of years after the deceased passed away.
Trustee A passed away a number of years after the deceased had passed away.
Trustee C has resided in the dwelling from the date the deceased passed away until present.
Trustee C intends moving interstate.
The dwelling will be disposed of during the 2011-12 income year and a capital gain will be made on the disposal of the dwelling.
Trustee C will continue to reside in the dwelling until settlement on the disposal of the dwelling occurs.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
A capital gain made from a capital gains tax (CGT) event occurring in relation to a deceased's dwelling is disregarded if the interest passes to you as trustee of a deceased estate, provided certain conditions in subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied.
For the dwelling to be fully exempt it must be either disposed of within 2 years of the deceased's death or from the time of the deceased's death until your ownership interest ends, one or more of the following occupy the dwelling as their main residence:
The spouse of the deceased immediately before the death (except a spouse who is living permanently separated and apart from the deceased); or
An individual who had a right to occupy the dwelling under the deceased's will (life interest).
An individual would be considered to occupy a dwelling under the deceased's will if it was in accordance with the terms of the will. Provided they occupy the property as their main residence from the deceased death until the property is sold, the capital gain or loss made on the disposal of the property by the beneficiary is disregarded.
In this case, the deceased passed away in 19XX. The deceased had resided in the dwelling most of their ownership period, but had been residing in a nursing home at the time of their death. You, as Trustees of the deceased's estate have made the absence choice for the main residence exemption to apply from the date they moved into the nursing home until the date of their death.
The dwelling will be disposed of during the 2011-12 income year and the beneficiary with the life interest, will live in the dwelling from the date of the deceased's death until settlement on the disposal of the dwelling occurs.
Therefore, as the conditions in section 118-195 of the ITAA 1997 have been met, any capital gain made on the disposal of the deceased's dwelling will be disregarded.