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Edited version of private advice
Authorisation Number: 1051617887992
Date of advice: 11 December 2019
Ruling
Subject: CGT - deceased estates - 2 year discretion
Question 1
Is the main residence exemption in section 118-195 of the Income Tax Assessment Act 1997 (ITAA) available to A in relation to the 50% share of XXXX that passed to A upon the death of their child?
Answer
No.As the taxpayer does not meet all of the requirements in section 118-195 of the ITAA 1997, a full main residence exemption is not available to them.
Question 2
Is the partial main residence exemption in section 118-200 of the ITAA 1997 available to A in relation to the 50% share of XXXX that passed toA upon the death of their child?
Answer
Yes.As the taxpayer meets all of the requirements in section 118-200 of the ITAA 1997, a partial main residence exemption is available to them.
This ruling applies for the following period:
Period ending 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
A was married to B.
On XXXX, A and B purchased a property (the property) as joint proprietors.
On XXXX, A gave birth to a child.
OnXXXX, the original certificate of title for the property was cancelled and replaced with two separate certificates of title.
The first certificate of title showed that A was the sole registered proprietor of a 50 % undivided share in the property.
The second certificate of title showed that B was the sole registered proprietor of a 50% undivided share in the property.
On XXXX, B passed away. B's will named their child as the sole executor and beneficiary of B's estate.
Probate was granted on XXXX for B's will.
On XXXX, A was admitted as an involuntary patient to XXXX, A ceased to live at the property from this time.
On XXXX, C was appointed as the administrator for A's estate by the Victorian Civil and Administrative Tribunal under the Guardianship and Administration Act 1986 (Vic).
On XXXX A and B's child passed away suddenly.
Their child was not living at the residence at the time of their death.
Their child's main residence was located elsewhere.
Their child's will appointed C as their executor and bequeathed any interest their child had in the property to A.
Their child's interest in the property was a 50% undivided share which they inherited from B upon B's death.
On XXXX, A was discharged from XXXX to XXXX Aged Care Facility.
On XXXX, B's certificate of title was registered in C's name as B's substituted legal personal representative.
On XXXX, C entered into a contract of sale on A's behalf for the sale of the property.
On XXXX settlement of the sale of the property was completed.
From XXXX to XXXX, the property has never been rented out or otherwise used to generate income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-195
Income Tax Assessment Act 1997 Section 118-195(1)
Income Tax Assessment Act 1997 Section 118-200
Income Tax Assessment Act 1997 Section 118-200(2)
Income Tax Assessment Act 1997 Section 118-200(3)
Income Tax Assessment Act 1997 Section 118-205
Income Tax Assessment Act 1997 Section 118-205(2) (b)
Reasons for decision
These reasons for decision accompany the Notice of private ruling for XXXX.
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Question 1
Is the main residence exemption in section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) available to XXXX in relation to the 50% share of the property that passed to XXXX upon the death of their child XXXX.
Answer
No.As the taxpayer does not meet all of the requirements in section 118-195 of the ITAA 1997, a full main residence exemption is not available to them.
Detailed reasoning
The main residence exemption in section 118-110 of the ITAA 1997 applies to disregard a capital gain or capital loss a taxpayer makes from a CGT event that happens to a dwelling that is their main residence. If a taxpayer inherits an ownership interest in relation to a dwelling or a dwelling as a beneficiary of a deceased estate, section 118-195 of the ITAA 1997 applies to disregard the capital gain or loss made from a CGT event that happens in relation to that dwelling or the taxpayer's ownership interest in it. Certain conditions in subsection 118-195(1) of the ITAA 1997 must be satisfied before the capital gain or loss can be disregarded.
For ownership interests acquired after 20 September 1985, the following conditions must be satisfied for the main residence exemption to apply:
a) The dwelling must have been the deceased's main residence just before the deceased's death,
b) The residence must not have been used for the purpose of producing assessable income then and
c) Your ownership interest must end within 2 years of the deceased's death, or within a longer period of time allowed by the Commissioner
Application to your situation
XXXX inherited their 50% interest in the property following the death of their child XXXX. At the time of XXXX's death, they were not living at the property. As XXXX was not XXXX's main residence at the time of their death, XXXX is not eligible for a full main residence exemption as all the conditions in subsection 118-195(1) of the ITAA 1997 have not been met.
Question 2
Is the taxpayer entitled to a partial main residence exemption?
Answer
Yes.As the taxpayer meets all of the requirements in section 118-200 of the ITAA 1997, a partial main residence exemption is available to them.
Detailed reasoning
Yes. Section 118-200 of the ITAA 1997 provides for a partial exemption where an individual receives an ownership interest in a dwelling or a dwelling as a beneficiary of a deceased estate. A taxpayer may receive a partial exemption if:
(a) They are an individual and their ownership interest in a dwelling passes to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and
(b) Section 118-195 of the ITAA 1997 does not apply.
As you meet the conditions for section 118-200 of the ITAA 1997, you are eligible for a partial exemption. The relevant formula in subsection 118-200(2) for determining how much of a capital gain or loss is not exempt is:
Capital gain or capital loss amount x (non-main residence days/ total days)
In this case,
Non-main residence days is the sum of:
(a) The number of days in the second deceased's ownership period when the dwelling was not the second deceased's main residence and
(b) The number of days in the period from the second deceased's death until the taxpayer's ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195
Total days is the number of days in the period from the acquisition of the dwelling by the second deceased until the taxpayer's ownership interest ends
Because you inherited your ownership interest in the dwelling after 19 September 1985 as a beneficiary through a chain of deceased estates, you adjust the formula in subsection 118-200(2) of the ITAA 1997 to take into account the times when the dwelling was the main residence of an individual earlier in the inheritance chain (section 118-205 of the ITAA 1997) The total days formula is therefore adjusted so that you add the fewer of:
· The number of days between 20 September 1985 and the day the ownership interest passed to the most recently deceased (paragraph 118-205(2)(a) of the ITAA 1997) and
· The number of days between the time when an ownership interest in the dwelling was last acquired on or after 20 September 1985 by an individual, except as a beneficiary in or a trustee of a deceased estate, and the day when the interest passed to the most recently deceased (paragraph 118-205(2)(b) of the ITAA 1997)
For the purposes of section 118-200(3), the taxpayer can adjust the formula by ignoring any non-main residence days and total days in the period from the deceased's death until the ownership interest ended if,
(a) The deceased acquired the ownership interest on or after 20 September 1985; and
(b) Your ownership interest ends within:
(i) 2 years of the deceased's death; or
(ii) a longer period allowed by the Commissioner; and
(c) You get a more favourable result by doing so.