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Edited version of your written advice
Authorisation Number: 1012910767276
Date of advice: 12 November 2015
Ruling
Subject: Capital gains tax - main residence
Question:
Will the capital gain from the sale of your interest in the dwelling be disregarded under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts
The arrangement that is subject of the private ruling is described below. This description is based on the following documents. These documents form part of, and are to be read with this description. The relevant documents are:
• Private ruling
• Statutory declaration
• Transmission application
• Certificate of Title
The deceased acquired a dwelling prior to 19 September 1985.
The deceased died a number of years later.
The dwelling had been the deceased's main residence until they died.
The deceased had three children, (A), (B) and (C).
'B' resided in the dwelling with the deceased and was their carer prior to the deceased's death.
The deceased had prepared a statutory declaration which declared their wishes.
Under the deceased's will, which cannot now be located, their three children received a one-third interest in the dwelling.
'C' died in 20XX and their one-third interest passed to their two children, (D) and (E), who thereby each acquired a one-sixth interest in the dwelling.
'B' resided in the dwelling until 20YY when they moved into an aged care facility.
The dwelling was valued for probate purposes in a particular year at $X.
The dwelling was sold for $Y in the 20ZZ income year with settlement occurring in the 20VV income year.
The dwelling has not been used to produce assessable income.
'B' did not have another main residence.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 118-195.
Income Tax Assessment Act 1997 Section 118-200.
Income Tax Assessment Act 1997 Subsection 128-15(2)
Income Tax Assessment Act 1997 Subsection 128-15(4)
Income Tax Assessment Act 1997 Section 115-25.
Reasons for decision
As the dwelling was acquired by your parent prior to 20 September 1985, you are taken to have acquired your interest in the dwelling at the date of their death for its market value at that time.
If an interest in a dwelling passed to you as a beneficiary in a deceased estate, and the dwelling was acquired by the deceased before 20 September 1985, section 118-195 provides that you will be entitled to a full exemption if:
Your ownership interest ends within two years of the deceased's death, or
The dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:
• the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased)
• an individual who had a right to occupy the dwelling under the deceased's will, or
• an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.
An individual would be considered to occupy a dwelling 'under the deceased's will' if it was in accordance with the terms of the will. This would also be the case if it was in pursuance of the will or under the authority of the will (see Evans v. Friemann (1981) 53 FLR 229 at 238).
In this case, there is no evidence that 'B' had a right under the will to reside in the dwelling. They resided in the dwelling because the executors and other beneficiaries so agreed.
This outcome is consistent with the general rule of construction that the intent of the deceased must be ascertained from the words of the will and that one cannot speculate or guess after that intention. (see Certoma, GL 1987, The Law of Succession in New South Wales , The Law Book Company, Sydney, p. 117)
As 'B' did not have a right to occupy the dwelling under the deceased's will, as required by section 118-195, you cannot disregard the capital gain made on the disposal of your interest in the dwelling.
In your case, as none of the criteria in section 118-195 ITAA 1997 are satisfied, the main residence exemption does not apply to you. However, as you held your interest for more than 12 months you are eligible to apply the 50 per cent individual discount to the capital gain you make.