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Subject: Capital gains tax - Deceased estate - Disposal

Question

Will you be liable for capital gain tax as a result of disposing of the inherited dwelling?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

Your late parent (parent 'A') had a sole interest in a property acquired prior to 20 September 1985

Parent ('A') left their sole interest in the property to parent ('B'),

Parent ('B') resided in this property prior to 20 September 1985 until moving into a nursing home for a period of time before passing away after a number of years

You are the beneficiary and trustee of parent ('B') will

You have resided in the property for a number of years

The property has been transferred into your name as a beneficiary under the terms of parent ('B') will

You will sell the property within two years of the date of death of parent ('B')

You will make an absence choice as trustee of parent (B') estate.

The property has not been used to produce income

You will make a capital gain as a result of the sale

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 118-195

Income Tax Assessment Act 1997 Section 118-200

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 Section 128-15

Reasons for decision

A CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. Further, the capital gain or capital loss is made at the time of the event.

A capital gain is made if the amount received (called capital proceeds) from the disposal exceeds the cost base of the CGT asset.

Asset acquired from a deceased estate

Special rules apply when an asset owned by a person just before they die, passes to their trustee or beneficiary of a deceased estate.

The beneficiaries 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, for CGT purposes you are considered to have acquired parent ('B') property on the date of your parent ('B') death.

Main Residence - Full Exemption

Section 118-195 of the ITAA 1997 provides when a capital gain or capital loss from certain CGT events that happen in relation to a dwelling which a taxpayer owns as a beneficiary of a deceased estate can be disregarded in full.

For a dwelling acquired by the deceased on or after 20 September 1985 which was their main residence just before they died and was not then being used for the purpose of producing assessable income, the beneficiary will be entitled to a full exemption if:

o the beneficiaries ownership interest ends within two years of the deceased's death or

o the dwelling was from the deceased's death until your ownership interest ends the main residence of one or more of:

o Spouse of the deceased immediately before death

o An individual who had a right to occupy the dwelling under the deceased's will         

o A beneficiary to whom the ownership interest passed and that person disposed      of the dwelling in that capacity.

In your circumstances, you will sell the property as a beneficiary of parent ('B') estate and this will occur within two years of the date of death and as such any capital gain will be disregarded.