Edited version of your private ruling

Authorisation Number: 1012072520860

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Ruling

Subject: Capital gains tax - deceased estate and main residence

Question: Is the capital gain or capital loss made on the ending of the right to occupy the unit disregarded?

Answer: Yes

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

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 moved into a unit at the nursing home on early 20XX.

The deceased entered into an agreement with the nursing home and there were a number of conditions that had to be met before the deceased could obtain a unit, such as:

§ the deceased's previous home at had to be disposed of within six months of them moving into the lodge

§ a bond had to paid to a specified company

§ that there were sufficient funds in the deceased's bank account to cover their private medical benefits and incidentals

§ a specified percentage of the deceased's Centrelink payments went to the lodge for their care, and

§ the deceased had to purchase specialised furniture stipulated by the nursing home.

Settlement on the deceased's home occurred in mid 20XX.

The deceased resided in the unit at the lodge as their main residence up until their death in late 2011.

The deceased's right to occupy the unit at the lodge ceased upon their death.

You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling:

§ the nursing home - Monthly Tax Invoice for Fees - the deceased - for a specified period

§ Death Certificate - the deceased dated late 2011

§ the Last Will and Testament of the deceased dated early 20XX, and

§ 201X PAYG Payment Summary - Individual Non Business - the deceased, and

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 128-15

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 104-25

Income Tax Assessment Act 1997 Section 102-20

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.

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or a capital loss as a result of a CGT event happening

The most common CGT event (CGT event A1) occurs if you dispose of a CGT asset. 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.

CGT event C2 happens if your ownership of an intangible CGT asset (for example, a right to occupy a unit) ends by the asset being abandoned, surrendered or forfeited. The time of the event is when you enter into the contract that results in the asset ending, or if there is no contract, when the asset ends.

You make a capital gain from CGT event C2 if the capital proceeds from the ending are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.

If a person with the right to occupy surrenders or releases their interest there are two events that may be applicable CGT event A1 or CGT event C2.

In this case, the deceased had a right to occupy the unit as her main residence and this right ceased upon their death, so we consider relevant CGT event in this case is CGT event C2.

Deceased estate

When a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset owned by the deceased, just before death, is generally disregarded. 

The main residence exemption provision provides that any capital gain or capital loss made from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest that has been acquired from a deceased estate is disregarded if:

§ the deceased acquired the ownership interest on or after 20 September 1985; and

§ the dwelling was the main residence (home) of an individual who had a right under the deceased will to occupy the dwelling.

Normally when an executor or beneficiary of a deceased estate acquires a dwelling, which was the deceased's main residence. The executor or beneficiary acquires the dwelling on the deceased's date of death.

A capital gain or capital loss made from the disposal of a dwelling acquired by the deceased after 20 September 1985, which was their main residence immediately before their death and not being used to produce income, is disregarded if:

§ from the time of death until its disposal of it, the property was the main residence of the deceased's spouse or an individual who had a right of occupancy under the will , or

§ the property is disposed of within two years of the death of the deceased

In your case, you acquired the unit on the deceased's death in late 2011, it was the deceased's main residence just before they died and it was not being used to produce assessable income and the right to occupy the unit ceased within two years of the deceased's death.

Therefore, any capital gain or capital loss made upon the cessation of the right to occupy is disregarded.