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Edited version of private advice
Authorisation Number: 1012624870666
Ruling
Subject: Capital gains tax - deceased estate - disposal of main residence
Question 1:
Is the capital gain or capital loss made on the disposal of your interest acquired from a deceased estate disregarded?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commences on
1 July 2013
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.
Your parent acquired a property prior to 20 September 1985.
The property was their main residence for their entire ownership period.
Your parent died more than two years ago.
Under your parent's will you and your sibling are the residual beneficiaries.
You also resided with your parent.
Your sibling resides in a foreign country and is a foreign resident for Australian taxation purposes.
Approximately 16 months ago the property was transferred into you and your sibling's names as tenants in common in equal shares as per the terms of your parent's will.
You moved out of the property approximately three months ago.
You moved into a new property which is your main residence.
The property was sold by auction approximately two months ago.
Settlement on the disposal of the property will occur this month.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-140
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
The most common capital gains tax (CGT) event is CGT event A1, which happens when you dispose of a CGT asset. The time of the event is when you enter into the contract for its disposal or if there is no contract when a change of ownership occurs.
CGT event A1 occurred when the property was disposed of.
Deceased estate
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.
If you acquire an asset owned by a deceased person as their legal personal representative or it passes to you as a beneficiary you are taken to have acquired the asset on the day the person died.
In your case, you are taken to have acquired your interest in the property on your parent's date of death.
Inherited main residence
If you inherit a deceased person's dwelling, you may be exempt or partially exempt when a CGT event happens to it.
For the purpose of the main residence exemption, you are treated as if that interest in the dwelling has passed to you as a beneficiary of the deceased estate.
If the deceased acquired the dwelling before 20 September 1985, you can disregard any capital gain or capital loss you make from a CGT event that happens to the dwelling if either of the following applies:
• You dispose of your ownership interest within two years of the person's death,
OR
• from the deceased's death until you disposed of your ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:
• a person who was the spouse of the deceased immediately before the deceased's death
• an individual who had a right to occupy the home under the deceased's will, or
• you, as a beneficiary, if you disposed of the dwelling as a beneficiary.
In your circumstances, the property was your main residence and you are disposing of this interest in the property as a beneficiary.
Moving from one main residence to another
If you acquire a new home before you dispose of your old one, both dwellings are treated as your main residence for up to six months if:
• the old dwelling was your main for a continuous period of at least three months in the 12 months before you disposed of it
• you did not use the old dwelling to produce assessable income in any part of that 12 months when it was not your main residence, and
• the new dwelling becomes your main residence.
If you dispose of the old dwelling within six months of acquiring the new one, both dwellings are exempt for the whole period when you acquire the new one and dispose of the old one.
In your case, the property was your main residence and it was disposed within six months of you acquiring your new main residence.
Therefore, any capital gain or capital loss made on the disposal of your interest in the property is disregarded.