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Edited version of your written advice
Authorisation Number: 1051492393731
Date of advice: 13 March 2019
Subject: CGT – main residence – trust- deceased estate
Question
Are you eligible to disregard the entire capital gain made on the sale of the dwelling?
Answer
No
This ruling applies for the following period:
1 July 2018 to 30 June 2019
The scheme commences on:
The scheme has commenced
Relevant facts and circumstances
The deceased’s last will, appointed two children executors of the will and trustees of the estate.
One of the executors under the will had life interest in the property (Beneficiary A). The property could be sold during their lifetime and the proceeds used to purchase another property to be occupied by them in the same conditions as given for the property in the will.
Once the deceased past away and probate was granted to the executors.
The executors of the estate sold the property under the conditions of the will.
The two executors of the estate retired as trustees of the estate and appointed new executors.
With the proceeds of the sale, land was purchased by the executors of the estate, and a dwelling was constructed on the land.
The beneficiary moved in immediately after construction was complete and this was their main residence until their passing.
After they passed, the executors immediately took possession of the property and commenced the process to actively market the property for sale. Settlement incurred within a year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 Part 3-3
Income Tax Assessment Act 1997 Section 960-100
Reasons for Decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Main Residence Exemption
When the relevant criteria are satisfied there is a main residence exemption available under subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997).
The main residence exemption provides that a capital gain or capital loss made by an individual from a CGT event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period.
The taxpayer must be an individual to be eligible for the main residence exemption. The ITAA 1997 defines an individual to mean a natural person.
A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity. The trustee of a trust is taken to be an entity consisting of the trustee(s) at any given time.
However, if a provision refers to an entity of a particular kind, it refers to the entity in its capacity as that kind of entity, not to that entity in any other capacity. Therefore, the reference in subsection 118-110(1) (a) of the ITAA 1997 to an individual is a reference to an individual acting in their personal capacity only. It does not include an individual in the capacity of a trustee.
In this case, the dwelling was acquired by the trustee and the conditions in subsection118-110(1) (a) of the ITAA 1997 cannot be satisfied. Accordingly, any capital gain or capital loss made from the disposal of the dwelling by the trustee will not be disregarded under section 118-110.
Main Residence Exemption - Trustee acquiring dwelling under will
Section 118-210 of the ITAA 1997 is applicable where the trustee of a deceased estate acquires an ownership interest in a dwelling for occupation by an individual under the will of the deceased.
A trustee acquires an ownership interest in a dwelling "under the will" of the deceased if the interest is acquired in accordance with the terms of the will or under the authority of the will.
The dwelling was acquired under the will of the deceased, and was also used as Beneficiary A’s main residence.
As the dwelling was their main residence during only part of that period, partial exemption will apply. The capital gain should be apportioned by taking into account the total non-main residence days and the total days during the period as per subsection 118-210(4).