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Edited version of private advice
Authorisation Number: 1051685439668
Date of advice: 11 June 2020
Ruling
Subject: CGT - (deceased estates)
Question 1
Did CGT event A1 happen to your ownership interest in the Property on XXXX?
Answer 1
Yes
Question 2
Can you disregard any capital gain made on the sale of your ownership interest in The Property under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer 2
Yes
This ruling applies for the following period:
Year ending 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
The Deceased died on XXXX.
Probate was granted on XXXX.
B was the Deceased's spouse at the date of the Deceased's death.
The dwelling at XXXX (The Property) was the Deceased and B's main residence at the date of The Deceased's death.
The Property was held as tenants-in-common with the Deceased and B having a one-half share each. The tenants-in-common arrangement came into place on XXXX.
The value of the Deceased's interest in the property at the date of their death was $XXX, 000.
Following the Deceased's death, The Property continued to be the main residence of B until The Property was sold.
The contract sale date was XXXX and the settlement date was XXXX. Settlement price was a total amount of $XXX,000.
The sale of The Property proceeded on the incorrect basis that it was held as joint-tenants by the Deceased and B, rather than as tenants-in-common.
The Property was sold by B as the surviving joint-tenant, rather than as a tenant-in-common with the Estate.
The Executors did not participate in the sale of The Property and only became aware of the sale years after it occurred. The Executors are not disputing any aspect of the sale.
The Estate would have been entitled to a portion of the sale proceeds. However, B was attributed the full proceeds. The Will made no provision for B.
B subsequently lodged a valid Part IV claim on the estate indicating that they may make a claim on the estate regarding the value of The Property. All beneficiaries and the executor have agreed to settle B's claim to avoid the cost and inconvenience of litigation.
The new owners of The Property have not been able to become registered owners of The Property without the Estate being removed off the title by the executor. This action will be taken as soon as all details are known including any taxation consequences.
The new owners gained possession of The Property at the time settlement occurred.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 section 118-130
Income Tax Assessment Act 1997 section 118-195(1)
Reasons for decision
Question 1
Summary
CGT event A1 happened to your ownership interest in the Property on XXXX.
Detailed reasoning
You can only make a capital gain or capital loss if a CGT event happens. You make the gain or loss at the time of the event. (The CGT event still happens if the gain or loss is disregarded.)
CGT event A1 happens if you dispose of a CGT asset to another entity. You dispose of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law.
The time of CGT event A1 for disposal under a contract is when you enter into the contract.
Real property is a CGT asset. An interest in real property is also a CGT asset. (This is relevant where there are joint owners as the CGT provisions apply independently to each owner.)
The Deceased's interest in the Property devolved to you as the Trustee for the Estate as the Deceased owned it as tenants-in-common with B. It is being sold to the new owners under the contract that B entered into on XXXX.
CGT event A1 happened on XXXX when the sale contract was entered into by B as the Executors are not disputing any aspect of this sale and the sale is proceeding.
The timing of CGT event A1 is not affected by the other matters that you have identified including the delay in transferring the title, the payment of the settlement proceeds to B and the Part IV claim.
Question 2
Summary
You are able to disregard any capital gains made on the disposal of your ownership interest in The Property in accordance with section 118-195(1) of the ITAA 1997?
Detailed reasoning
The main residence exemption under section 118-195(1) of the ITAA 1997 provides that any capital gains made on the disposal of an ownership interest in a dwelling can be disregarded where certain conditions are met. In your situation, these conditions are satisfied as:
a) the Deceased acquired the ownership interest on or after 20 September 1985 and it was their main residence just before their death and was not then being used for the purpose of producing assessable income and
b) The Property was from the Deceased's death until your ownership interest ends, the main residence of B.
In working out the main residence exemption, we consider your ownership interest to have ended at settlement of the sale of the Property. From that day forward you have not held any legal ownership over the Property in your own right.
Therefore, any capital gain made on the sale of your ownership interest in The Property may be disregarded.