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Subject: Capital gains tax - Deceased estate - Disposal

Question:

Will the capital gain or capital loss made upon your disposal of your interest in the dwelling you inherited be disregarded?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

Your parent acquired a sole interest in a dwelling prior to 20 September 1985

Your parent passed away after September 1985.

You and your sibling inherited your late parent's dwelling.

You and your sibling hold your interest's in the dwelling as tenants in common.

The dwelling has been left vacant from the date of your parent's death until it was disposed.

You have regularly attended the dwelling to maintain the dwelling and carry out some minor renovations

You disposed of the dwelling, which occurred more than two years after the death of your parent.

You made a capital gain as a result of the disposal.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 128-15

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 115-5

Income Tax Assessment Act 1997 Section 114-5

Reasons for decision

Capital gains tax (CGT) is the tax that you pay when a CGT event happens to a CGT asset, such as a dwelling.  The most common CGT event is when you dispose of the asset to another entity (such as the disposal of a dwelling). 

Generally, assets inherited through a deceased estate are acquired on the date of death.

Therefore, you are taken to have acquired your interest in the dwelling on your mother's date of death.   As you have acquired your interest in the dwelling after 20 September 1985, the dwelling is subject to CGT upon its disposal.

The first element of the cost base of a dwelling that was the main residence of the deceased just before their death and at the time was not being used to produce assessable income is the market value of the dwelling on the deceased's date of death.

Therefore, you are taken to have acquired your interest in the dwelling on the date of death of your mother, for the market value of the property on that date. 

A capital gain or capital loss can be completely disregarded when a CGT event happens to a deceased persons main residence that you acquired as a trustee or beneficiary of a deceased estate after 20 September 1985, if:

 You are an individual and any one of the following applies:

· your ownership interest ends within two years of the person's death;

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

o the spouse of the deceased immediately before death,

o an individual who had a right to occupy the dwelling under the deceased's will, or

o the individual as a beneficiary if they are disposing of the dwelling as a beneficiary.

In your case, as none of the above conditions have been met you are not entitled to an exemption on your disposal of an interest in the dwelling.