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Edited version of private advice
Authorisation Number: 1051578585140
Date of advice: 11 September 2019
Ruling
Subject: Capital gains tax
Question
Will the property be subject to Capital Gains Tax upon its sale?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2020
The scheme commenced on:
1 July 2019
Relevant facts and circumstances
The deceased passed away in the 2013 income year.
The property was acquired by the deceased pre-CGT.
The deceased lived in the property as their main residence for the whole of their ownership period
The deceased was the sole owner of the property.
Probate was granted on XX XXX 2013.
The deceased's spouse was living in the property as their main residence just before the deceased passed.
The deceased's spouse has the right to live in the property for as long as they choose to.
The deceased's spouse will remain living in the property until the property is sold.
The property is less than 2 hectares.
The property will be sold in the 2020 income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 102-20
Income Tax Assessment Act 1997 - Subsection 118-195(1)
Income Tax Assessment Act 1997 - Section 118-200.
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that Capital Gains Tax (CGT) is incurred when a CGT event takes place and either a capital gain or a capital loss results. Any capital gain is added to any other assessable income for the relevant year and is then taxed at the appropriate marginal tax rate. A capital loss can be offset against other current year capital gains or carried forward indefinitely to be offset against future year capital gains. The most common CGT event is known as CGT event A1 and generally occurs whenever there is a change in ownership of a CGT asset from one party to another.
Subsection 118-195(1) of the ITAA 1997 provides that a trustee of a deceased estate disregards a capital gain or loss from a dwelling that a deceased person acquired before 20 September 1985 if:
(1) the trustee's ownership interest ends within 2 years of the deceased's death, or
(2) from the deceased's death until the trustee's ownership interest ends, the dwelling was the main residence of one or more of the following persons:
(a) the spouse of the deceased immediately before death; or
(b) an individual who had the right to occupy the dwelling under the deceased's will; or
(c) an individual who brought about a CGT event where the ownership interest in the dwelling passed to the same individual as a beneficiary.
You have an ownership interest in a property if you have a legal interest in the property. This means 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).
In this case, you did not sell the property within two years of the deceased's passing. Therefore, a full main residence exemption will only be available after this time if the dwelling is the main residence of one of the specified individuals during the trustee's ownership period.
The deceased's spouse has lived in the property prior to and since the deceased passed.
In addition to being the deceased's spouse the spouse also has the right to occupy the property under the will.
The property will be exempt from CGT when it is sold in the 2020 income year.