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Ruling
Subject: Main residence exemption
Question 1
Can the capital gains arising from the sale of the property, which was occupied by the spouse of a deceased person as a main residence, be disregarded under section 118-210 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following periods:
1 July 2010 to 30 June 2012
The scheme commences on:
1 July 2010
Relevant facts and circumstances
In the will, the deceased appointed trustees to their estate.
The spouse of the deceased received a life interest in the estate.
The trustees purchased a property after 20 September 1985 for the spouse of the deceased to reside in.
The property became the principal place of residence for the spouse until the spouse moved out.
The trustees have now placed the property in the hands of real estate agents with a view to selling the property.
It is expected that the property will make a capital gain.
Since it was vacated, the property was not been used to derive assessable income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 118-B,
Income Tax Assessment Act 1997 Subsection 118-210(3),
Income Tax Assessment Act 1997 Subparagraph 118-130(1)(c)(ii) and
Income Tax Assessment Act 1997 Subsection 118-145(3).
Reasons for decision
Subdivision 118-B of the ITAA 1997 applies to disregard a capital gain arising from the disposal of an ownership interest in a property that has been used as a main residence.
Under subsection 118-210(3) of the ITAA 1997, a capital gain or capital loss made from a CGT event that happens in relation to a CGT asset is disregarded if:
· you receive money or property for the CGT even happening or the event happens in relation to another entity; and
· the dwelling was the main residence of the individual from the time you acquired the interest until the time of the event
Subparagraph 118-130(1)(c)(ii) of the ITAA 1997 provides that the ownership interest in a flat or home unit is defined as a licence or right to occupy it.
In this case, the trustees have an ownership interest in the property under the deceased's will and the spouse occupied it as a main residence until recently.
Pursuant to subsection 118-145(3) of the ITAA 1997, a person can treat the property as their main residence indefinitely even though the dwelling has ceased to be their main residence, provided that it is not used to produce assessable income.
Although the spouse is no longer residing at the property, it can continue to be treated as the spouse's main residence.
As such subsection 118-210(1) of the ITAA 1997 applies and any capital gains made by the trustee in disposing of the property will be disregarded under subsection 118-210(2) of the ITAA 1997.