Edited version of private advice

Authorisation Number: 1051963046372

Date of advice: 21 March 2022

Ruling

Subject: CGT - deceased estate

Question

Is any capital gain or loss you make due to the sale of the dwelling on the property disregarded?

Answer

Yes.

This ruling applies for the following periods:

20XX-XX income year

20XX-XX income year

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your parent bought the property some XX years ago.

The property about X hectares in size. The dwelling on the property was your parent's main residence from the date of purchase until they passed away some XX years ago.

Your parent lived at the property with you up until they passed away. You were still a minor at that time.

You went to live with a relative after your parent passed away as you had no other family to care for you.

Your parent left the property to you in the will but it was not to be transferred into your name until you reached 25 years of age. You are the only beneficiary of the property.

The property was transferred into your relative's name as Executor of your parent's deceased estate a couple of years ago. The only reason the property was not transferred into your name was that you had not attained 25 years of age.

At no stage was the property rented out to anybody else and just sat empty with basic maintenance performed to keep the property neat.

It was thought that you would move back into this property and continue to use it as your main residence once you became an adult able to support yourself. It was later decided that this would not happen, so the property was put up for sale.

Your relative (as Executor of your parent's deceased estate) sold the property with settlement of the sale occurring recently.

You are choosing to continue treating the dwelling on the property as your main residence for capital gains purposes from the date you stopped residing there until settlement of the sale occurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

Summary

Any capital gain or loss you make due to the sale of the dwelling on the property is disregarded.

The main residence exemption also applies to a two hectare portion of the property that you can treat as adjacent land.

Detailed reasoning

You owned the property for capital gains purposes when it was sold

One role undertaken by the executor of a deceased estate is to transfer some of the deceased's assets to the beneficiaries named in the will.

The beneficiary makes any capital gain or loss if the asset is sold after they become the owner of the asset.

The same outcome occurs for capital gains purposes if an asset continues to be held by the executor of the deceased estate after the beneficiary is absolutely entitled to it.

Your situation is very similar to the example in Taxation Determination TD 2004/3 which discusses this concept.

You make any capital gain or loss due to the sale of the property and it is your use of the property after your parent passed away that is tested for entitlement to any main residence exemption.

The sale of the dwelling is exempt.

The sale of the dwelling on the property meets the exemption conditions that apply to this inherited dwelling. They are:

•         The CGT event happened in relation to a dwelling

•         You are an individual

•         The dwelling passed to you as a beneficiary of a deceased estate

•         The dwelling was the deceased's main residence just before they passed away and not then being used to earn assessable income, and

•         The dwelling was your main residence from the date the deceased passed away until your ownership ended (settlement of the sale).

The dwelling can be your main residence as the result of a choice such as the absence choice.

Extending the main residence exemption to adjacent land

Taxation Determination TD 1999/67 provides guidance on how to choose the part of the property that you can treat as adjacent land that receives the main residence exemption with the dwelling.

The remainder of the property will not qualify for any main residence exemption.