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Edited version of private advice
Authorisation Number: 1051613172050
Date of advice: 2 December 2019
Ruling
Subject: Deceased Estate
Question
Can the trustee of the deceased estate ('you') disregard the capital gain on your sale of the dwelling under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Under subsection 118-195(1) of the ITAA 1997, a trustee of a deceased estate can disregard a capital gain made on the sale of a dwelling that was the deceased's main residence just before their death and was not then being used to produce assessable income if:
(a) the estate's ownership interest ends within 2 years of the date of death or a longer period allowed by the Commissioner; or
(b) it was, for the period from the deceased's death until the estate's ownership interest ends, the main residence of certain persons including the deceased's spouse or an individual who had a right to occupy it under the deceased's will.
In the present case the requirements for an exemption under (b) are met except for a very short period from when Z ceased residing in the dwelling to when your ownership interest ended on the date of settlement. However, it is considered appropriate for the Commissioner to extend the period of time allowed to dispose of the dwelling to the date of settlement.
Consequently, you can disregard the entire capital gain made on the disposal of the dwelling.
This ruling applies for the following period:
Year ended 30 June 201X
The scheme commences on:
1 July 201X
Relevant facts and circumstances
The deceased purchased a dwelling on XX/XX/XXXX.
The dwelling was the deceased's main residence from the date acquired to the date of their death on XX/XX/XXXX.
The deceased did not use the dwelling for the purpose of producing assessable income just before their death or at any other time.
Under the Will of the deceased, the deceased's adult child, Z, was granted a life interest to occupy the deceased's dwelling with a condition that Z pay all rates, taxes and other outgoings.
Z lived in the dwelling with the deceased prior to the deceased's death until they moved out on XX/XX/XXXX.
You sold the dwelling with settlement occurring shortly after Z moved out. This took place more than 2 years after the deceased's death.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 subsection 118-130(3)
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)