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Edited version of your written advice
Authorisation Number: 1012714711192
Ruling
Subject: Deceased estate main residence
Question 1
Will the capital gain made on the sale of the property be disregarded under section 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Will section 118-200 of the ITAA 1997 apply to provide a partial exemption in relation to the capital gain made on the sale, if B passes away before the sale of the property, or no longer uses it as their main residence?
Answer
Yes.
Question 3
If a capital gain arises from the sale of the property under section 118-200 of the ITAA 1997, are you entitled to apply the general 50% discount contained in division 115 of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commences on:
1 July 2014
Relevant facts and circumstances
A (the deceased) passed away.
A's spouse (B) and A's solicitor were appointed as joint executors and trustees.
The solicitor retired as a trustee and where C and D were appointed as trustees.
A's will contained the following key points:
• The whole estate was to be held on trust for B, to provide for them a residence and income during their lifetime.
• Upon the death of B, the whole estate is to be equally shared between C and D.
A owned the property and resided there with B and claimed the property as their main residence for capital gains tax (CGT) purposes.
The property was purchased prior to 20 September 1985 and is a pre-CGT asset.
The property was continuously occupied by A and B from the date of purchase until the A's death as their main residence and was not used to produce income.
B has continued to reside in the property, since A's death, as their main residence.
It is anticipated the property will be sold by the taxpayer in the near future, while B is using the property as their main residence.
The property does not have an indexed cost base.
You have held the property for more than 12 months, since A passed away.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 115-10
Income Tax Assessment Act 1997 (ITAA 1997) section 115-15
Income Tax Assessment Act 1997 (ITAA 1997) section 115-20
Income Tax Assessment Act 1997 (ITAA 1997) section 115-25
Income Tax Assessment Act 1997 (ITAA 1997) section 115-100
Income Tax Assessment Act 1997 (ITAA 1997) section 100-45
Income Tax Assessment Act 1997 (ITAA 1997) section 118-195
Income Tax Assessment Act 1997 (ITAA 1997) section 118-200
Reasons for decision
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
........... | |||
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case, A acquired the property before 20 September 1985. B, who was A's spouse immediately before A's death, has continued to treat the property as their main dwelling after A's death. Under a provision of the will, B also has the right to occupy the dwelling. As such, both item 2(a) and 2(b) of section 118-195(1) of the ITAA 1997 are satisfied.
Provided B continues to treat the property as their main dwelling and the property is sold before their death, any capital gain or capital loss arising from the sale will be disregard under section 118-195 of the ITAA 1997.
In the case where B passes away before the property is sold, or no longer treats the property as their main dwelling, the tests in column three of the table will no longer be satisfied. Accordingly, you would no longer be entitled to the full main residence exemption, under section 118-195 of the ITAA 1997.
Section 118-200 of the ITAA 1997 provides a partial exemption for deceased estate dwellings. This part exemption is based on the proportion of your ownership period that B occupied the property.
You are entitled to a partial exemption (or no exemption) if you are an individual and your ownership interest in a dwelling passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate and section 118-195 of the ITAA 1997 does not apply.
Accordingly, you will be entitled to the partial exemption under section 118-200 of the ITAA 1997 for the capital gain or capital loss arising from the sale of the property, should B pass away before the property is sold or no longer choose to treat the property as their main dwelling.
If the property is sold and section 118-195 of the ITAA 1997 is unable to apply, you may incur a capital gain or capital loss. Where a capital gain meets the requirements in section 115-5 of the ITAA 1997, the capital gain is a discount capital gain.
To be eligible for a discount capital gain, the following conditions must be satisfied:
• You are an individual, complying superannuation entity, trust, or a life insurance company in relation to a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation/FHSA asset (section 115-10 of the ITAA 1997).
• The capital gain must result from a CGT event happening after 21 September 1999 (section 115-15 of the ITAA 1997).
• The capital gain must have been worked out using a cost base that has been calculated without reference to indexation (section 115-20 of the ITAA 1997).
• The CGT asset must have been held for at least 12 months before the CGT event occurred (section 115-25 of the ITAA 1997).
In this case, you are one of the specified individuals/entities and you acquired the property more than 12 months ago. You intend to sell the property in the near future, as such the CGT event will occur after 21 September 1999. The property does not have an indexed cost base. Accordingly, you will be entitled to the CGT discount, as per section 115-100 of the ITAA 1997.