Edited version of private advice

Authorisation Number: 1051595961059

Date of advice: 21 November 2019

Ruling

Subject: CGT-deceased estate

Question

Can the main residence exemption be extended to include the period from XXXX to XXXX?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 19XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 19XX

Relevant facts and circumstances

The deceased died on X month XXXX.

The deceased and the sibling each inherited a 50% share of the property from their parent in XXXX.

The deceased's parent inherited the property from their spouse in XXXX.

The deceased lived in the property as the main residence from the 19XX's until the deceased went into a nursing home in XXXX.

The deceased paid all of the expenses associated with the property.

The deceased's sibling never lived in the property but allowed the deceased to live in the property rent free.

The deceased's sibling died on X month XXXX and left the deceased 50% share in the property to the deceased.

The property was vacant from X month XXXX until its sale in X month XXXX.

The deceased treated the property as the main residence from when the deceased went into the nursing home in XXXX until the sale of the property.

The property was sold in month 20XX.

A portion of the capital gain realised on the 50% share owned by the deceased's sibling between XXXX-XXXX has been declared in the deceased's tax return in the 20XX income year.

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 110-25

Income Tax Assessment Act 1997 section 116-30

Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision

A person makes a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).

Generally, assets a person inherits through a deceased estate are acquired on the date of death (section 128-15 of the ITAA 1997).

The first element of the cost base of an interest in a dwelling that was the main residence of the deceased just before their death, the dwelling was not used to produce assessable income and the land does not exceed 2 hectares is the market value of the dwelling on the deceased's date of death (section 128-15(4) of the ITAA 1997).

Subsection 118-195(1) of the ITAA 1997 allows a capital gain or loss to be disregarded in certain circumstances when a CGT event happens to a deceased person's main residence that a person acquired as a trustee or beneficiary of a deceased estate.

In the situation where the deceased acquired the dwelling on or after 20 September 1985, the dwelling was the deceased's main residence just prior to their death and was not used to produce assessable income, the capital gain or capital loss can be disregarded if:

You are an individual and the ownership passed to you as a trustee or beneficiary of a deceased estate, and any of the following apply:

·         a beneficiary or trustee disposes of their ownership interest in the dwelling within two years of the deceased's death, regardless of whether the dwelling is used as the beneficiary's main residence or to produce income; or

·         from the date deceased's death until the beneficiary or trustee disposes of their ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:

·               The spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased);

·               An individual who had the right to occupy the dwelling under the deceased's will; or

·               An individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.

Application to your circumstances

50% of the property was inherited by the deceased on X month XXXX from the sibling.

Analysing section 118-195 of the ITAA 1997, the 50% interest inherited by the deceased's sibling from their parent was inherited post 20 September 1985 and therefore that ownership interest would have been acquired post CGT.

The deceased's sibling did not live in the property as the main residence just before the deceased's sibling died on X month XXXX. Therefore item 1 in column 1 of the table in subparagraph 118-195(1)(b) is not satisfied. The result is that the CGT cannot be disregarded under section 118-195 of the ITAA 1997.

There are also no other provisions which would enable the main residence exemption to be extended to cover the period in which the deceased's sibling had an ownership interest in the property but did not use it as the main residence.

Accordingly, CGT is payable on the 50% share of the property inherited by the deceased on X month 20XX.

Partial main residence exemption

Partial exemption

Where a full exemption is not available, you may be entitled to a partial exemption under section 118-200 of the ITAA 1997.

You calculate your capital gain or capital loss as follows:

Non-main residence days - numbers of days in the period from the date of death until settlement of the contract that the dwelling was not the main residence of:

·    person who was the spouse of the deceased immediately before the deceased's death

·     an individual who had a right to occupy the home under the deceased's will

·     you, as a beneficiary, if you disposed of the dwelling as a beneficiary.

Total days - the number of days from the date of death until you disposed of your ownership interest