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Edited version of your written advice
Authorisation Number: 1051474922114
Date of advice: 19 February 2019
Ruling
Subject: Capital gains tax – deceased estate – absence choice
Question
Is a full main residence exemption under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) available to the trustee of the deceased’s estate?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 201E
The scheme commenced on
1 July 201D
Relevant facts
‘A’ and their spouse ‘B’ purchased a dwelling after 20 September 1985. (The dwelling)
The dwelling was acquired as joint proprietors.
The dwelling was the main residence of ‘A’ and ‘B’.
‘A’ and ‘B’ did not own any other real property.
‘A’ and ‘B’s health diminished and they both moved into an aged care facility in 201A.
‘A’ and ‘B’ shared a unit in the aged care facility.
The dwelling was occupied by ‘C’ who is a child of ‘A’ and ‘B’.
‘C’ did not pay any rent to ‘A’ and ‘B’.
‘B’ passed away in 201B.
‘A’ acquired ‘B’s interest in the dwelling by way of survivorship.
‘A’ passed away in 201C.
The executor for the estate of the ‘A’ has elected to treat the property as their main residence up to the date of their death.
The property was sold as part of finalising the deceased’s estate and settled in 201D.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-195
Reasons for decision
A capital gain or capital loss will occur when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event is CGT event A1 which occurs when a CGT asset is disposed of.
Generally, you can fully disregard a capital gain or capital loss made on the sale of a dwelling that is your main residence if:
● the dwelling was your home for the whole period you owned it
● the dwelling was not used to produce assessable income; and
● any land on which the dwelling is situated is not more than 2 hectares
These provisions are extended to cover those taxpayers who leave their main residence, but choose to continue to treat it as their main residence.
Section 118-145 of the ITAA 1997 allows a taxpayer to treat a dwelling as their main residence despite being absent from it. However it is subject to the following conditions;
● it can only apply once the dwelling has qualified as a main residence,
● no other dwelling can be treated as a main residence during the period that the concession applies,
● it applies indefinitely if the dwelling is not used for producing assessable income during the period of absence, and
● It applies for up to 6 years if the dwelling is used to produce assessable income (and any further period it is used not so used).
Application to your circumstance
In this case, Individual A and Individual B jointly purchased a dwelling which was their main residence until they moved out on XX XXX XXXX. The dwelling was not used to produce assessable income.
As the dwelling was Individual A’s main residence prior to the death of Individual B, any exemptions that Individual A was entitled to prior to the transfer of Individual B’s ownership interest will continue as long as the relevant conditions are met. There is no requirement for an individual to move back into a dwelling that qualified as a main residence after they choose to apply the absence rule, this is even so where the individual acquires an additional ownership interest in the dwelling after they have moved out.
An individual can continue to treat the dwelling as their main residence indefinitely provided that it is not used to produce assessable income as the absence choice only requires that the dwelling qualifies as a main residence before the choice is applied. Therefore the main residence exemption is available for the entire dwelling and as it is considered that the absence choice applies to the entire dwelling and not just to Individual A’s original XX% ownership interest. The entire dwelling is considered to be the main residence of Individual A before they passed away.
Main residence exemption – deceased estate
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.
As the dwelling was the main residence of the deceased due to the absence choice, the trustee can choose under subsection 118-145(1) of the ITAA 1997 to continue to treat it as their main residence. A full exemption will be available under section 118-195 of the ITAA 1997. As the conditions have been satisfied and the absence choice has been made.