Edited version of your written advice

Authorisation Number: 1012729390401

Ruling

Subject: Capital gains tax

Question and answer

Is the entire amount of the capital gain you made from the disposal of the dwelling assessable to you?

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You and your spouse jointly owned your main residence and another dwelling (the dwelling).

The dwelling was purchased after 1985 and before 1999.

Your spouse passed away.

The ownership interest held by your spouse in your main residence and the dwelling were subsequently transferred to you under the terms of the will and the estate was finalised.

You were contacted by family relatives who requested they receive part of the estate although they were not named in the will.

To avoid going through a costly court process to dispute the claims of the relatives, you came to an agreement to pay them an amount in settlement of their claims.

You had to sell the dwelling to settle the claims of the relatives.

The dwelling was sold less than 12 months after the share of your spouse was transferred to you.

You made a capital gain on the sale of the dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 100-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 110-36

Income Tax Assessment Act 1997 section 115-25

Reasons for decision

An individual makes a capital gain or loss when a capital gains tax (CGT) event happens to an asset that was originally acquired after 20 September 1985.

CGT event A1 happens when you dispose of a land or a dwelling to someone else. The time of the event is when the disposal contract is entered into, not when it is completed or settled.

A full or partial exemption from capital gains tax may be available if a dwelling was your main residence for all or part of the period you owned it.

In your case, you acquired a 50% share in a dwelling when you purchased the dwelling with your spouse. You acquired the other 50% ownership interest from the estate of your spouse and you signed a contract for the disposal of the dwelling within 12 months of the transfer to you. The dwelling was not your main residence.

Consequently, you are required to include the capital gain you made on the disposal in your assessable income.

As the disposal of the dwelling was entered into as a result of relatives staking a claim against the deceased estate, you have requested that half of the capital gain should be attributed to the estate, instead of the full gain being borne by you.

However, the deceased estate had been finalised and the ownership interest of your spouse transferred into your name before the disposal contract had been entered into. Therefore, the gain can only be included in your assessable income and the Commissioner has no discretion under the law to alter this.

As you acquired your original 50% share of the dwelling before 21 September 1999 and held it for at least 12 months before you disposed of it, you can reduce the amount of your capital gain on this share by choosing either the discount or indexation methods to work out your gain. No reduction is available for the 50% share you acquired from the deceased estate as you held this share for less than 12 months.