Edited version of your private ruling

Authorisation Number: 1012590149630

Ruling

Subject: CGT - Deceased estate - inherited property - family agreement

Question 1:

Will the capital gain or capital loss made on disposal of a deceased main residence be disregarded?

Answer:

No.

Question 2:

Will the capital gain or capital loss made on disposal of a deceased main residence be disregarded in part?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

Your parent (parent A) acquired a sole interest in a property, from the estate of your late parent (parent B) who passed away on prior to 20 September 1985

Parent A passed away after 19 September 1985.

You and your siblings inherited parent's A dwelling.

In accordance with the deceased's last will, the ownership of the main residence was to be transferred to the children of the deceased.

You and your siblings were unable to resolve the directions contained in the will and entered into a family agreement.

You have supplied a number of documents which forms part of this private binding ruling.

We have obtained the following information from this document.

A number of your siblings, continued to reside in the dwelling.

A number of your siblings, agreed to accept a sum of money in accordance with the family agreement.

A number of your siblings renounced their interests in the property.

Title to the property was settled on the basis that you hold X/10ths and your siblings who reside in the property hold Y/10ths each as tenants in common.

Your siblings who reside in the dwelling have predeceased you, so that you now are the sole registered owner of the property.

Sibling A passed away in the 2008 income year and their share passed to you.

Sibling B passed away in the 2013 income year and their share passed to you.

You have not used the property to earn assessable income.

You reside in another property that you own.

Title to the property passed to you and was registered in your name as the registered proprietor.

You have sold the property.

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 128-15

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.

You acquired different interests in the property on the deaths of your parent and a number of siblings'

Therefore, you are taken to have acquired your first interest in the dwelling on your parent's date of death. As you have acquired this 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 this interest in the dwelling on the date of death of your parent, for its 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:

• 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.

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

The same principles apply to the interest you acquired from your sibling's; you acquire the interest for its market value on their date of death. As you disposed of the interest you acquired from sibling B within two years of their death any capital gain or capital loss is disregarded.

A partial main residence exemption will apply when you dispose of your ownership interest in the property acquired from sibling A as it is outside the two year period and the property was the deceased main residence just before their death. Partial exemption can be calculated for the interest using the following formula:

Capital gain or Capital loss amount multiplied by Non-main residence days divided by Total days.

Capital Gain or Capital Loss is the amount that you made from the sale of the property.

Non-main residence days are the sum of:

- the number of days in the period from their death until you dispose of the property (settlement date).

Total days is:

- The number of days in the period from the acquisition date of sibling A until your ownership interest ends (settlement date).