Edited version of your private ruling

Authorisation Number: 1012431027793

Ruling

Subject: Capital gains tax on disposal of a dwelling

Questions and answers:

1. Are you entitled to an exemption from capital gains tax (CGT) on the disposal of that part of your ownership interest in the dwelling you inherited from your relative?

No.

2. Are you entitled to a full exemption from CGT on the disposal of that part of your ownership interest in the dwelling you inherited from your second relative?

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You inherited an ownership interest in the house property (the dwelling) of a relative when they passed away in the late 1980s.

Another relative (the second relative) inherited a greater ownership interest in the dwelling than you.

Your relative's will did not state that any individual had a right to occupy the dwelling after their death.

The dwelling was purchased by your relative before 1985 and was their main residence at the time they passed away.

The second relative lived in the dwelling until their death. The dwelling was their main residence at the time they passed away.

You inherited part of the second relative's ownership interest in the dwelling.

The dwelling was sold and settlement took place in a later year.

You made a capital gain on the disposal of your ownership interest in the dwelling.

The dwelling was not used to produce income at any time.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Reasons for decision

Inheritance from your relative

Full main residence CGT exemption

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).

In your situation, you inherited an ownership interest in a dwelling when your relative passed away. Their ownership interest was acquired before 1985.

For CGT purposes, assets inherited through a deceased estate are taken to have been acquired on the date of the deceased's death. Therefore, your ownership interest in the dwelling is taken to have occurred on the date of death of the deceased. As you acquired your interest in the dwelling after 20 September 1985 your interest will be subject to CGT upon disposal of the dwelling.

Where the deceased acquired the dwelling before 20 September 1985 and you subsequently acquire it as a beneficiary of the deceased estate, section 118-195 of the ITAA 1997 allows a capital gain made on disposal to be disregarded in the following circumstances:

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

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

· the spouse of the deceased immediately before death; or

· 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.

In your situation, your ownership interest in the dwelling ended in a later year which is more than two years after the death of the deceased. Furthermore, from the time of the death of the deceased until your ownership interest ended the dwelling was not the main residence of the spouse of the deceased immediately before death, anyone who had a right to occupy the dwelling under the will, or you or anyone else disposing of the dwelling as a beneficiary.

Therefore, under section 118-195 of the ITAA 1997 you are not entitled to a full exemption from CGT on the disposal of the ownership interest in the dwelling you inherited from your relative.

Partial main residence CGT exemption

Where section 118-195 of the ITAA 1997 does not apply, you may be entitled to a partial exemption on any capital gain under section 118-200 of the ITAA 1997 when from the deceased's death until your ownership interest ends the dwelling was the main residence of one or more of the following persons for part of your ownership period:

· the spouse of the deceased immediately before death; or

· 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 stated above, there are no individuals who meet these criteria and therefore you are not entitled to a partial exemption from CGT.

To summarise, you are not entitled to an exemption from CGT on the disposal of your ownership interest in the dwelling you inherited from your relative.

As you acquired your ownership interest in the dwelling at least 12 months before you disposed of it, you may reduce the capital gain you made by the 50% discount allowable under subdivision 115-A of the ITAA 1997.

Inheritance from your second relative

Full main residence CGT exemption

You inherited an additional ownership interest in the dwelling when your second relative passed away in 2011. Their ownership interest was acquired in 19XX

Where the deceased acquired an ownership interest in the dwelling on or after
20 September 1985 and you subsequently acquire it as a beneficiary of the deceased estate, section 118-195 of the ITAA 1997 allows a capital gain made on disposal to be disregarded in the following circumstances:

· the dwelling was the deceased's main residence just before the deceased's death; and

· the dwelling was not being used for the purpose of producing assessable income; and

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

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

· the spouse of the deceased immediately before death; or

· 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.

In your situation, the dwelling was the main residence of the second relative just before their death. The dwelling was not being used to produce assessable income and your ownership interest ended within two years of their death.

Therefore, you are entitled to a full exemption from CGT on the disposal of the ownership interest in the dwelling you inherited from the second relative.

Summary

You are entitled to a full exemption from CGT on the disposal of that part of your ownership interest in the dwelling you inherited from your second relative; however, you are not entitled to an exemption from CGT on the disposal of that part of your ownership interest in the dwelling you inherited from your relative.