Edited version of your private ruling

Authorisation Number: 1012611357907

Ruling

Subject: Capital gains tax - deceased estate - disposal of property

Your grandparent acquired a property.

The property was their main residence until they died more than five years ago.

The trustees of your grandparent's estate are your parent and a relative.

Your grandparent's will direct the property be transferred to you and your sibling.

Upon becoming beneficial owners on your grandparent's death of the property, you and your sibling moved into the dwelling and established it as your main residence.

At the time of your grandparent's death, grandchild A was over 18 years of age and grandchild B was a minor. Grandchild A was responsible enough to care for grandchild A and they had the support of your parents.

Both of your parents did not work at this time as they supported and cared for a disabled child.

The trustees are transferring the property title into you and your sibling's names.

You and your sibling will dispose of the property.

You have provided copies of documentation to support your application and this documentation is to be read with and forms part of your application for the purposes of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 106-50

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 128-10

Income Tax Assessment Act 1997 Section 128-15

Income Tax Assessment Act 1997 Section 128-20

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 CGT event is CGT event A1, which occurs when you dispose of a CGT asset. The time of the event is when the individual enters into the contract for the disposal, or if there is no contract when the change of ownership occurs.

CGT event A1 will occur upon the disposal of the property.

Deceased estate

If you acquire an asset owned by a deceased person as their beneficiary, you are taken to have acquired the asset on the day the person died.

Paragraph 72 of Taxation Ruling TR 2004/D25 states that a beneficiary of a deceased estate does not have an interest in any asset of a deceased estate (and therefore cannot be considered absolutely entitled to any of the estate's assets) until the administration of the estate is complete. That is, until the assets of the estate have been called in and the deceased's debts and liabilities have been paid.

Taxation Determination TD 2004/3 states that an asset will 'pass' to the beneficiary of a deceased estate when the beneficiary becomes absolutely entitled to the asset as against the estate's trustee (executor) (whether or not the asset is later transmitted or transferred to the beneficiary). The facts of each case need to be examined to determine whether a beneficiary has become absolutely entitled to an asset that is owned by the trustee and when that happened.

Once the asset has passed to an absolutely entitled beneficiary, it is the beneficiary that makes any capital gain or capital loss, not the trustee. Any relevant tests are then applied against the beneficiary to determine whether any exemptions or reductions are available.

Deceased's main residence

A capital gain or capital loss made on the disposal a deceased's main residence is disregarded upon its disposal on a number of conditions which must be met. One of the conditions is:

• from the deceased's death until you dispose of your ownership interest, the dwelling was not used to produce assessable income and it was the main residence of one or more of:

n a person who was the spouse of the deceased immediately before the deceased's death (but not a spouse who was permanently separated from the deceased)

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

n you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

When a person dies any capital gain or capital loss that results from CGT assets they owned just before their death is disregarded, provided that the CGT assets either devolve to their legal personal representative (trustees) or pass to beneficiaries in their estate under the terms of the will.

If the beneficiaries are absolutely entitled to the assets, then those assets are deemed to have passed to the beneficiaries.

In your case, you and your sibling will become the registered owners of the property when the executors of your grandparent's estate transfer the title into joint names. At this time the property is deemed to have passed to you and your sibling.

Therefore, you and your sibling will have a legal and equitable ownership interest in the property with each having a 50% ownership interest.

Main residence

Generally, an individual can ignore a capital gain or capital loss they make on the disposal of a dwelling that was your main residence if:

• the dwelling was their main residence throughout their ownership period

• they must not have used the dwelling to produce assessable income

• any land that the dwelling is situated must be less than two hectares, and

• the dwelling becomes their main residence as soon as practicable after they acquire their ownership interest in it.

As the property has been your main residence for your entire ownership period any capital gain or capital loss made on its disposal is disregarded.