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Edited version of your written advice
Authorisation Number: 1051203198291
Date of advice: 22 March 2017
Ruling
Subject: Capital gain tax - Deceased estate - Main residence exemption
Question
Are you entitled to full main residence exemption under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of the property?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 20ZZ.
The scheme commences on:
1 July 20YY.
Relevant facts and circumstances
The deceased's late spouse acquired a property in 19XX (the dwelling).
In 19XY the deceased inherited the dwelling when their spouse passed away.
The deceased passed away in the 20XX income year.
The dwelling was the deceased's main residence.
The deceased moved out of the dwelling and lived with a grandchild in 20VV for health and wellbeing reasons. Soon after, the deceased moved into a nursing home and continued to live there until they passed away in the 20XX income year.
The deceased made a choice to treat the dwelling as their main residence during their absence.
During the deceased's absence, the dwelling was used to produce income for the 20WW and 20XX income years.
At the time of the deceased's death, the dwelling was rented to an unrelated third party.
The executor of the deceased's estate continued to earn income from the dwelling for the remainder of 20XX and part of 20YY income years.
The dwelling was sold in the 20XX income year, with the settlement taking place in the 20YY income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-145.
Income Tax Assessment Act 1997 subsection 118-190(3).
Income Tax Assessment Act 1997 subsection 118-190(4).
Income Tax Assessment Act 1997 section 118-195.
Summary
You are entitled to the two year exemption from capital gains tax (CGT) as you sold the dwelling within two years of the deceased's date of death.
Detailed reasoning
Absence Choice
Generally, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to continue to treat a dwelling as your main residence for CGT purposes even though you no longer live in it. This is known as an absence choice.
If the dwelling is not used to earn assessable income, and you do not own another main residence during the period of your absence, you can choose to treat the property as your main residence indefinitely. If the dwelling is used to earn assessable income you may make an absence choice for a period of up to six years.
In your situation, the deceased moved out of the dwelling to live with their grandchild and then lived in a nursing home until they passed away. During this time, the deceased didn't own another dwelling that was considered to be their main residence. After the deceased moved out, the dwelling was rented during the 20WW and 20XX income years.
Therefore, as the deceased did not have another main residence that they owned after they moved out of the dwelling, and it was used to produce assessable income for a period of less than six years, the deceased was able to make an absence choice continue to treat the dwelling as their main residence from the time they moved out until they passed away during the 20XX income year.
Two year exemption from CGT
When an ownership interest in a dwelling passes to you as a trustee of a deceased estate, you can disregard a capital gain or loss from selling the dwelling that the deceased person acquired on or after 20 September 1985 if:
● The dwelling was the deceased's main residence when they died; and
● The dwelling was not then being used to produce assessable income; and
● Your ownership interest in the dwelling ends within two years of the deceased person's death.
If you make an absence choice you may ignore any use of the dwelling for producing assessable income.
The deceased acquired the dwelling in after 20 September 1985. As the deceased made an absence choice the dwelling is considered to be their main residence up until the time they passed away. As an absence choice has been made, the time when the dwelling was used to produce assessable income is ignored.
As you have disposed of the dwelling within two years from the day your ownership interest in the dwelling started you may disregard any capital gain or loss you made on the sale of the dwelling.