Edited version of private advice

Authorisation Number: 1051837486851

Date of advice: 2 June 2021

Ruling

Subject: Capital gains tax on an inherited dwelling

Question 1

Did the whole of the property 'pass' from the estate to Beneficiary A of the estate in accordance with section 128-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, the whole of the property passed to Beneficiary A under the will in accordance with paragraph 128-20(1)(c) of the ITAA 1997 as it was appropriated to Beneficiary A as a beneficiary by the executors of the estate in satisfaction of Beneficiary A's one third share in the estate.

Question 2

Is the whole of the capital gain made by the estate on the transfer of the property to Beneficiary A disregarded in accordance with section 128-15(3) of the ITAA 1997?

Answer

Yes, any capital gain or capital loss on the disposal of the property by the estate to Beneficiary A is disregarded in accordance with subsection 128-15(3) of the ITAA 1997 as the asset passed to Beneficiary A as a beneficiary of the estate.

Question 3

Is Beneficiary A treated as having acquired the property on the deceased's date of death pursuant to section 128-15(2) of the ITAA 1997?

Answer

Yes, Beneficiary A is considered to have acquired the property on the date of the deceased's death per subsection 128-15(2) of the ITAA 1997 as the asset passed to Beneficiary A as a beneficiary of the estate.

Question 4

Is the first element of Beneficiary A's cost base the deceased's first element of the cost base on the deceased's date of death in accordance with subsection 125-15(4) of the ITAA 1997?

Answer

Yes, Beneficiary A's cost base is the first element of the property's cost base on the date of death as per item 1 in the table listed in subsection 125-15(4) of the ITAA 1997 as the asset passed to Beneficiary A as a beneficiary of the estate.

Question 5

Is Beneficiary A entitled to the partial main residence exemption calculated in accordance with section 118-200 of the ITAA 1997, subject to the application of section 118-205 of the ITAA 1997 in relation to the sale of the property with effect from the deceased's date death?

Answer

Yes, as Beneficiary A treated the property as their main residence from when they acquired their ownership interest on the deceased's date of death, they are entitled to a partial main residence exemption calculated in accordance with sections 118-200 and 118-205 of the ITAA 1997.

This ruling applies for the following period periods:

•   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

•   Year ended 30 June 20XX

•   Year ended 30 June 20XX

•   Year ended 30 June 20XX

•   Year ended 30 June 20XX

•   Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased died during the year ended 30 June 20XX, leaving a will.

Under the will, the deceased left thier estate equally to their 3 children, beneficiary A, beneficiary B and beneficiary C.

During the year ended 30 June 20XX the executors of the estate were granted probate of the will.

Pursuant to the will, each of beneficiary A, beneficiary B and beneficiary C were the residuary beneficiaries, giving them each a one-third interest in the estate.

The will provided:

'To distribute any part or parts of my estate amongst the person or persons entitled in such manner and at such valuations as my executors shall deem proper so as to bring about an equitable distribution of my estate having regard to the wishes of the beneficiaries and to appropriate any asset of my estate not specifically given at the value determined by a suitably qualified person retained by my Executors (and the costs of all such valuations shall be born as a testamentary expense) without the consent of the beneficiary in full or partial satisfaction of any legacy or share of residue.'

The residuary estate comprised properties, shares, cash and other assets.

The property was purchased by the deceased and their spouse during the year ended 30 June 19XX.

Full ownership of the property passed to the deceased after their spouse died.

At all times since the death of the deceased, beneficiary A, beneficiary B and beneficiary C, in their roles as both executors and beneficiaries, have recognised and agreed (consistent with the wishes of their late parents) that the property would be treated as Beneficiary A's and that it would be appropriated to them under the will on account of their one-third share.

At no time since the date of death has Beneficiary A paid rent to the estate. However, Beneficiary A paid council rates, water rates, capital improvements and other maintenance expenses in relation to the Property from the date of the deceased's death. This was consistent with the estate's decision to treat the Property as passing effective ownership.

By a transmission application, beneficiary A, beneficiary B and beneficiary Cas executors, transferred the Property to Beneficiary A. In accordance with the transmission application.

The Property represented X% of the estate at that time.

The estate transferred the Property to Beneficiary A in partial satisfaction of their interest in the estate (being 33.33%). There was no additional consideration paid by Beneficiary A for this transfer.

The other assets have yet to be sold but it is expected that their total sale price will exceed 66.6% of the value of the balance of the assets listed above and Beneficiary A will be entitled to proceeds from the estate in relation ot the other assets in addition to the allocation of the Property which will fully satisfy the 33.3% interest in the estate.

Beneficiary A sold the Property during the year ended 30 June 20XX.

Beneficiary A has used the Property from the date of acquisition by the deceased and the deceased's spouse as their main residence until when Beneficiary A, together with their spouse, acquired and moved into a new property to be used as their main residence.

At no time during that period did Beneficiary A or their spouse use any other property as their main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20