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Edited version of your written advice
Authorisation Number: 1013119121577
Date of advice: 3 November 2016
Ruling
Subject: CGT - deceased estate
Question
Can the exemption in subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) still apply if the individual with the right to occupy the dwelling is not a beneficiary of the property of the estate?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 201X
The scheme commences on:
1 July 201X
Relevant facts and circumstances
The deceased passed away in 201X.
Their main residence was purchased in 201X.
The deceased's Will provides an individual with a right to occupy the property for the remainder of their life.
This individual is currently residing in the property.
Under the Will, the individual is not a beneficiary of the property, but is a beneficiary of the residuary estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195.
Reasons for decision
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an individual who owns a dwelling in a capacity as trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if:
● the property 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, and
● your ownership interest in the dwelling ends within two years of the deceased person'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 following persons:
● the spouse of the deceased immediately before death, or
● an individual who had a right to occupy the dwelling under the deceased's Will, or
● an individual who brought about the CGT event and the ownership interest in the dwelling had passed to that individual as beneficiary.
The legislation does not specify that the individual has to be a beneficiary of the property. In fact, it is often seen that the person with the right to occupy the property is not a beneficiary of the estate at all.
Therefore, if the individual with a right to occupy the dwelling under the deceased's will makes the dwelling their main residence and does so in accordance with strict adherence to the terms of the Will, subsection 118-195(1) can apply to exempt any capital gain made on disposal of the dwelling.