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Edited version of your written advice
Authorisation Number: 1012831588204
Date of advice: 30 June 2015
Ruling
Subject: Capital gains tax and the main residence exemption
Question 1
Are you entitled to apply the capital gains tax (CGT) main residence exemption under section 118-110 of the Income Tax Assessment Tax 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Are you entitled to apply the CGT absence provision for main residence exemption under section 118-145 of the ITAA 1997?
Answer
Yes.
Question 3
Are you entitled to apply any CGT main residence exemption provisions under division 118-B of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2015.
The scheme commences on:
1 July 2014.
Relevant facts and circumstances
The deceased purchased a residential property in the 1999-00 financial year. The property was located on less than two hectares of land.
The property was the deceased's main residence until the 20AA-BB financial year.
In the 20AA-BB financial year, the deceased was moved to a nursing home and the property was rented until the deceased passed away in the 20XX-YY financial year.
The property continued to be rented until sold by the estate in the 20YY-ZZ financial year.
Relevant legislative provisions
Income Tax Assessment Tax 1997 section 102-20.
Income Tax Assessment Tax 1997 section 115-10.
Income Tax Assessment Tax 1997 division 118-B.
Income Tax Assessment Tax 1997 section 118-110.
Income Tax Assessment Tax 1997 section 118-145.
Income Tax Assessment Tax 1997 section 118-200.
Reasons for decision
Capital gains
Section 102-20 of the ITAA 1997 provides that a capital loss or gain is made as a result of a CGT event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. CGT assets include real estate acquired on or after 20 September 1985.
Main residence exemption
Generally, a capital gain or loss can be ignored from a CGT event that happens to an ownership interest in a dwelling that is a taxpayer's main residence.
To get the full exemption from CGT:
• the dwelling must have been your home for the whole period you owned it
• you must not have used the dwelling to produce assessable income, and
• any land on which the dwelling is situated must be 2 hectares or less.
Rules extending main residence exemption - absence rule
As a general rule, a dwelling is no longer your main residence once you stop living in it. However, under section 118-145 of the ITAA 1997, you can continue to treat a dwelling as your main residence for CGT purposes even though you no longer live in it. If you make this choice, you cannot treat any other dwelling as your main residence for that period (except for a six month period if section 118-140 of the ITAA 1997 applies).
If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after the day you cease living in it.
Rules extending main residence exemption - deceased estates
Section 118-200 of the ITAA 1997 allows a trustee or beneficiary of a deceased estate to apply a partial exemption for deceased estate dwellings. You get a partial exemption if the ownership interest in a dwelling devolved to you as the trustee of a deceased estate, and section 118-195 of the ITAA 1997 does not apply to you (about disregarding in full the CGT from a dwelling acquired from a deceased estate).
You calculate your capital gain or capital loss using the formula:
Capital gain or loss amount |
× |
Non-main residence days |
where:
non-main residence days is the sum of:
the number of days in the deceased's ownership period when the dwelling was not the deceased's main residence; and
total days is:
the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends.
Under subsection 118-200(3) of the ITAA 1997, you can ignore any non-main residence days and total days in the period from the deceased's death until your ownership interest ended, if:
(a) the deceased acquired the ownership interest on or after 20 September 1985; and
(b) your ownership interest ends within:
(i) 2 years of the deceased's death; or
(ii) a longer period allowed by the Commissioner; and
(c) you get a more favourable result by doing so.
Application to your circumstances
In your circumstances, the dwelling was being rented out and the absence provision had expired at the time the deceased passed away. The dwelling was therefore considered not to be the main residence of the deceased just prior to their passing away and section 118-195 of the ITAA 1997 does not apply.
However, section 118-200 of the ITAA 1997 does apply to you and provides an exemption for the period from death until your ownership interest ended.
In your case, the dwelling you acquired from the deceased's estate was:
• the deceased's main residence from the date the deceased acquired the property until moving into the nursing home
• considered the deceased's main residence under the absences provision from the date the deceased moved into the nursing home and for the next six years
• not the deceased's main residence from the day after the six years expired under the Absence rule until the date of death
• considered the deceased's main residence under the deceased estates provisions from date of death until sale of the property - which was less than two years (these dates will not be included in the above formula).