Edited version of private advice

Authorisation Number: 1051696261781

Date of advice: 6 July 2020

Ruling

Subject: Capital gains tax - main residence exemption

Question

Are you eligible for a partial main residence exemption on the disposal of the Property at XXXXXX?

Answer

Yes

This ruling applies for the following period:

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased purchased a house (Property A) in 19XX. The purchase price of Property A was $XXX, XXX. Prior to this, they lived with their spouse until they were separated and subsequently divorced.

The Deceased lived in Property A for X years from 19XX to 19XX.

From 19XX to 20XX, The Deceased was incarcerated.

The Deceased rented Property A out from 19XX to 20XX.

The Deceased met their current spouse whilst they were volunteering at the prison where The Deceased was incarcerated.

When the Deceased was released from prison in 20XX they moved back to Place A. They stayed for a short period with their parent. They then lived with their spouse from 20XX.

The Deceased's spouse purchased a house (Property B) in 20XX. The Deceased never had an ownership interest in Property B.

The Deceased and their spouse married in 20XX.

The Deceased retired from full time employment in 20XX but remained working part time until 20XX in Place A. Because of the Deceased's part time work, they and their spouse stayed at Property B every few weeks of so for several days at a time

From 20XX, The Deceased would spend approximately a short period with their spouse at Property B, a short period with their spouse at Property A and then they would each spend a short period alone in their respective properties.

The Deceased carried out extensive work on Property A and they and their spouse intended to live there full time once The Deceased retired.

The Deceased had electricity accounts in their name since 20XX and these were sent to the Property A address. Their Driver's licence and Electoral roll address were listed as the Property B address, however.

The Deceased kept half of their belongings at Property A and had some mail addressed there.

In the Deceased's later years, their ill health meant that they needed to stay closer to hospitals at Place A at least some of the time due to their ill health.

The Deceased was admitted to a nursing home in 20XX.

A contract for the sale of Property A was signed in 20XX.

The Deceased passed away in 20XX. Settlement occurred a short time later.

In the entire time of their ownership of Property A, The Deceased did not have any ownership interests in any other property.

Their spouse remains living in Property B.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-170

Income Tax Assessment Act 1997 section 118-185

Income Tax Assessment Act 1997 section 118-190

Income Tax Assessment Act 1997 section 118-200

Reasons for decision

Summary

You are eligible for a partial main residence exemption for Property A.

Detailed reasoning

Property A and partial exemption from CGT

You get only a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if:

You held the dwelling or your interest in it as the executor of a deceased estate

The sale (settlement) occurs after the deceased passed away, and

The dwelling had been the main residence of the deceased but wasn't their main residence just before they passed away.

Property A was The Deceased's main residence from 19XX to 19XX. They were incarcerated from 19XX until 20XX. Property A was rented out from 19XX to 20XX.

Where an individual moves out of a dwelling they have nominated as their main residence, they may continue to treat it as their main residence. for a defined period. This is known as making an absence choice. Where the dwelling is used to produce assessable income, the maximum period that an individual can treat a dwelling as their main residence is six years.

Property A was used to produce assessable income from 19XX to 20XX. As outlined, the maximum period The Deceased could make an absence choice for is six years. As The Property was The Deceased's main residence for X years and the Executor of their Estate has indicated they will exercise the absence choice for the next X years, the period from 19XX to 19XX will be exempt from CGT.

From 20XX, the Deceased resided at least part of the time with their spouse, first as a boarder and then as their spouse. The only way Property B can be kept fully exempt is if it was the deceased's main residence at all times that they were spouses and not Property A.

As they wish to maintain a full main-residence exemption for Property B, the Deceased will not be eligible for a partial exemption from 20XX when they began living with their spouse at Property B.

Time of the CGT event A1

Subsection 104-10(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you dispose of a CGT asset, in this case The Property, when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs. The Deceased entered into a contract in 20XX. They died before they were able to complete the contract.

However, their spouse completed it on their behalf as their Legal Personal Representative following the granting of probate. Therefore, the time of the disposal of the property was 20XX.

To calculate the portion of the capital gain that is taxable, you are required to divide the total number of days it was not The Deceased's main residence by the total number of days in his ownership interest. by the total capital gain or loss. This will give you the taxable portion of the capital gain. As the Deceased had held the asset for at least 12 months, they are also entitled to a 50% discount on the taxable amount