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Authorisation Number: 1012196000287

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Ruling

Subject: Capital gains tax - deceased estate - life interest and disposal of main residence

Question:

Will capital gains tax be payable on the disposal of the property upon the death of the life tenants?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2012

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.

For the purpose of this ruling both the life tenants under the deceased's will, the deceased's eldest child (child A) and their spouse are deceased.

Prior to 20 September 1985, the deceased and their spouse jointly acquired a property (the property).

The deceased and their spouse established the property as their main residence.

The deceased's spouse died.

The deceased resided at the property until their death late last year.

Child A and their spouse have resided at the property with the deceased and have done so for more than 20 years.

Under the deceased's will child A and their spouse have the exclusive use of the property until their death.

You, as the executor of the estate will dispose of the property for a capital gain and distribute the proceeds to the beneficiaries upon the death of child A and their spouse.

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:

· Probate Certificate of the deceased, and

· the deceased's will.

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 115-5

Income Tax Assessment Act 1997 Section 118-195

Income Tax Assessment Act 1997 Section 118-200

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.

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.

Where the asset devolves to the trustee or executor or passes to a beneficiary of the deceased estate, the executor or beneficiary is taken to have acquired the asset on the day the person died. 

The deceased acquired two separate interests in the property the first being a 50% interest when they jointly purchased the property prior to 20 September 1985 (pre CGT). The second interest was acquired after 20 September 1985 (post CGT) when the deceased's spouse passed away.  

Each of these interests is considered to be a separate CGT asset and must be dealt with separately (Taxation Determination TD 2000/31).

As the executor of the deceased's estate you acquired two separate interests in the property and the acquisition date of these interests is the deceased's date of death.

If a deceased person acquired their asset before 20 September 1985, the first element of your cost base and reduced cost base (that is, the amount taken to have been paid for the asset) is the market value of the asset on the day the person died.

If the deceased acquired an asset or an interest in an asset on or after 20 September 1985, the first element of your cost base and reduced cost base is taken to be the cost base and reduced cost base of the asset on the day the person died.

In your case, you will also acquire two separate interests in the property. The first interest (50%) was acquired by the deceased when they acquired the property, which will have a cost base of the market value on the deceased's date of death. The second interest (50%) is the interest the deceased acquired upon the death of deceased's spouse after 20 September 1985. As it was the deceased's main residence at the time of their death the cost base of this interest is its market value on the deceased's date of death.

In administering and winding up a deceased estate, an executor may need to dispose of some or all of the assets of the estate. Assets disposed of in this way are subject to the normal rules and any capital gain the executor makes on the disposal is subject to CGT.

In administering and winding up a deceased estate, an executor may need to dispose of some or all of the assets of the estate. Assets disposed of in this way are subject to the normal rules and any capital gain the executor makes on the disposal is subject to CGT.

CGT event A1 will occur when you dispose of the deceased's main residence.

However, there are a number of different exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event can be disregarded, either in full or in part.

Main residence

If you inherit a deceased person's dwelling, you may be exempt or partially exempt when a CGT event happens to it. The same exemptions apply if a CGT event happens to a deceased's estate of which you are the executor.

One such exemption relates to the disposal of a dwelling acquired by the executor of a deceased estate. Section 118-195 of the Income Tax Assessment Act 1997 outlines the conditions under which the capital gain or capital loss can be disregarded in full.

Where a dwelling acquired by the deceased and an individual has the right to occupy the property under the deceased's will as a life tenant, any capital gain or capital loss arising from the disposal of the property will be disregarded if the individual occupies the property as their main residence for all of the executor's ownership period.

If the life tenant does not occupy the property for all of the executor's ownership period, only a partial exemption will apply.

The life tenants will reside in the property as their main residence until they pass away.

Your ownership period of the property commenced on the deceased's date of death and will end on its disposal.

Only a partial main residence exemption can be obtained as the life tenants will not occupy the property as their main residence for all of your ownership period.

The non-exempt portion of any capital gain or capital loss is calculated using the follow formula:

Capital gain or capital loss X Non-main residence days

Total days

Capital Gain or Capital Loss is the amount that you made from the disposal before applying any main residence exemption or reduction.

Non main residence days are the number of days in the ownership period that the dwelling was not the main residence of the deceased (while they owned it) or an individual or individuals who had the right occupy the dwelling (while you have owned it. For both interests, the non main residence days are the days the dwelling was not the main residence of the life tenants during your ownership period.

Total days for the interest acquired prior to 20 September 1985are the number of days from the death of the deceased until settlement on the disposal of the dwelling. Total days for the other interest acquired by the deceased are the number of days from the death of the deceased's spouse until settlement of its disposal.

As have owned your interest in the property for more than 12 months, and you satisfy the other requirements for a discount capital gain, you can choose the 50% CGT discount method to calculate your net capital.

For further information on deceased estates and how to calculate your capital gain or capital loss please see the enclosed booklet which has been taken from the Guide to capital gains tax 2010-11 (NAT 4151-6.2010). Information is also available on our website - www.ato.gov.au.