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Edited version of your written advice
Authorisation Number: 1013082076525
Date of advice: 1 September 2016
Ruling
Subject: Capital gains tax
Question 1
Will the capital gain or loss made on the disposal of the property be disregarded?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The deceased died in 20XX.
The deceased purchased a property (the property), post CGT, which was the deceased's main residence.
There was no specific 'right to occupy' provided for under the will.
The deceased's child (Child 1) became the executor of the Will.
Child 1 moved into the property immediately after the deceased's death.
The property was not used to produce assessable income at any time during the ownership period.
Child 1 remained at the property, treating it as their main residence, until date of death in 20YY.
The executor of Child 1 estate was granted to their sibling (child 2) who also became the trustee of the deceased's estate.
The property was sold on dd/mm/yyyy with settlement occurring in 20ZZ.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-125
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if:
• deceased acquired dwelling prior to 20 September 1985; OR
• deceased acquired dwelling after 20 September 1985 and it was their main residence just prior to their death
and
• you (either the executor or beneficiary) disposed of the ownership interest within 2 years of the deceased's date of 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
• you, as a beneficiary, if you disposed of the dwelling as a beneficiary.
You have an ownership interest in a property if you have a legal interest in the property. Section 118-125 of the ITAA 1997 provides that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
Application to your circumstances
The meaning of the deceased's Will, cannot be assumed to give a right to occupy or a life interest to their children. 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).
The legislation is very prescriptive for when capital gains can be disregarded relating to a deceased estate. In your situation the dwelling was not disposed of within 2 years of the deceased's date of death, and there was no right to occupy the home under the deceased's will. Therefore you are not entitled to disregard the capital gains that occurred upon disposal of the property.