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Ruling

Subject: capital gains tax - deceased estate - disposal of main residence

Question: Is the capital gain or capital loss made on the disposal of your interest in your parent's main residence disregarded?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

Your parent owned a property (property A), which they acquired from a deceased estate in the mid 1980's.

Your parent resided in the property as their main residence.

Several years ago your parent moved into a nursing home.

A month later your parent passed away.

Property A was valued at your parent's date of death.

Under your parent's will you and your sibling are the beneficiaries of their estate. You and your sibling each received an equal share of your parent's estate.

Less than 5 years ago the executor completed transferring property A into you and your sibling's names.

Late the same year you commenced renovations at property A.

Late last year you had completed all the renovations.

All costs associated with the renovations were shared equally between you and your sibling.

You and your sibling disposed of property A.

Settlement on property A occurred in after 1 July 2011.

You received a sum of money after all commissions and fees/costs were deducted.

You have provided a copy 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.

Relevant legislative provisions

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 115-5

Income Tax Assessment Act 1997 Section 115-10

Income Tax Assessment Act 1997 Section 115-15

Income Tax Assessment Act 1997 Section 115-20

Income Tax Assessment Act 1997 Section 115-25

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.

The most common capital gains tax (CGT) event, CGT event A1, occurs when 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 A1 occurred when you disposed of your 50% interest in property A.

Deceased estates

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

In your case, you are taken to have acquired your interest in property A on your parent's date of death.

The first element of the cost base and reduced cost base of the dwelling - its acquisition cost is its market value at the date of death if either:

· the dwelling was acquired by the deceased before 20 September 1985, or

· where the dwelling passes to you after 20 August 1996, and it was the main residence of the deceased immediately before their death and it was not being used to produce assessable income.

In your case, you are taken to have acquired your interest in property A for its market value on your parent's date of death.

Dwelling acquired prior to 20 September 1985

For a dwelling acquired by the deceased before 20 September 1985, you will be entitled to a full exemption if:

· your ownership interest ends within two years of the deceased's death, or

· from deceased's death until your ownership interest ends, the main residence of one or more of:

· the spouse of the deceased immediately before their death (except a spouse who was living permanently separately and apart from the deceased), or

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

· an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.

If your parent acquired their interest in property A before 20 September 1985, your ownership interest in property A did not end within the two years of your parent's date of death, and it was not the main residence of an individual who had a right to occupy the dwelling under the deceased's will.

Therefore, you are not entitled to the main residence exemption.

Dwelling acquired after 20 September 1985

A capital gain or capital loss is disregarded when a CGT event happens to a deceased person's 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 of the following apply:

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

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

· the spouse of the deceased immediately before death

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

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

As property A was not disposed of within two years of your parent's death and no one had the right to occupy the dwelling under the deceased's will, you cannot disregard the capital gain or capital loss made on the disposal of property A.

Therefore, you do not qualify for a full exemption from CGT, however, you may be eligible for a partial exemption.

Partial exemption

You calculate your capital gain or capital loss using the following formula:

Capital gain or capital loss X Non-main residence days

Total days

Non-main residence days - is the number of days that the dwelling was not the main residence of the deceased in their period of ownership.

Total days - is the total days in the period from when the deceased acquired the dwelling until you dispose of your ownership interest.

Capital proceeds

What you receive as a result of a CGT event is referred to as your capital proceeds. For most CGT events, your capital proceeds are an amount of money or the value of your property you received (or are entitled to receive).

You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if the capital proceeds are less than the asset's reduced cost base.

Cost base

The cost base is made up of five elements:

· money or property given for the asset, in your case it will be either the market value of your mother's dwelling on her date of death (dwelling acquired prior to 20 September 195) or your mother's cost base (dwelling acquired on or after 20 September 1985)

· incidental costs of acquiring the CGT asset or that relate to the CGT event, such as services provided by auctioneer, costs of transfer, costs of advertising or marketing

· costs of owning the asset such as repairs

· capital costs to increase or preserve the value of your asset or to install or move it, and

· capital costs of preserving or defending your ownership of or rights to asset.

You can use the discount method to calculate your capital gain as you are an individual, the CGT event happened to an asset you owned, the CGT event happened after 21 September 1999, and the asset was acquired at least 12 months before the CGT event

The discount percentage is 50% for individuals.

Therefore, the capital gain or capital loss made on the disposal of your interest in property A is included in your relevant income tax return.