Edited version of private advice

Authorisation Number: 1051981841233

Date of advice: 19 May 2022

Ruling

Subject: CGT - deceased estate

Question 1

Can you disregard any capital gains tax (CGT) incurred on the disposal of your ownership interest in the property acquired before 1985?

Answer

Yes.

Question 2

Are you eligible for a partial main residence exemption on the disposal of your ownership interest in the Property acquired on the death of Person B?

Answer

No.

Question 3

Is Person B's date of death the acquisition date for your ownership interest in the Property acquired on the death of Person B?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A was married to Person B in 19XX.

They purchased a property (the Property) before 1985.

They purchased the Property as joint tenants, and it was encumbered by a mortgage.

Person A and Person B lived in the property as their main residence until they separated in 20XX. They were divorced shortly after.

At the time of separation, Person A and Person B agreed that Person B would retain the Property for their own use and benefit, subject to them being solely liable to pay all the amounts due in respect of the registered mortgage to the relevant bank from the time of separation until it was repaid in full.

Person B remained living in the property and Person A moved out of the property.

After the mortgage was repaid, Person B instructed solicitors to prepare correspondence to be forwarded to Person A with a land transfer document for their signature.

Person B was unable to locate their address and the documents could not be sent to Person A.

Person B died intestate. On their death, Person A acquired Person B's ownership interest in the property by way of survivorship.

Person B's parents predeceased them, and Person C is Person B's only living sibling and next of kin. Person B had no children.

Person A wishes to transfer their interest in the property to Person C, Person B's sibling, as the administrator of Person B's estate and their sole beneficiary.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 104-10(5)(a)

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-197

Income Tax Assessment Act 1997 section 118-200

Income Tax Assessment Act 1997 section 118-205

Income Tax Assessment Act 1997 section 128-50

Reasons for Decision

Question 1

Summary

You can disregard any capital gain or loss on disposal of your ownership interest in the Property you acquired before 1985.

Detailed reasoning

Property acquired before 20 September 1985 is regarded as a pre-CGT asset. A capital gain on the disposal of a pre-CGT asset can be disregarded under paragraph 104-10(5)(a) of the ITAA 1997.

Application to your circumstances

You and Person B acquired your Property as joint tenants before 1985. As you acquired your original interest in the Property prior to 20 September 1985, you can disregard any capital gain or loss on disposal of the ownership interest.

Question 2

Summary

You are not eligible for a partial main residence exemption on disposal of your ownership interest acquired on the death of Person B.

Detailed reasoning

Joint tenants

Where an individual acquires an interest as a joint tenant on the death of the other joint tenant, section 118-197 provides that Subdivision 118B of the ITAA 1997 (Main residence) applies to the surviving joint tenant as if the asset had passed to them as a beneficiary of a deceased estate.

Dwelling acquired from a deceased estate

A capital gain or capital loss you make from a CGT event that happens in relation to a dwelling that was the deceased's main residence when they died, or your ownership interest in it is disregarded if:

(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

(b) your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner or:

(c) the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: the spouse of the deceased immediately before the death, or an individual who had a right to occupy the dwelling under the deceased's will; or if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.

Partial or no exemption for deceased estate dwellings

You get only a partial exemption (or no exemption) if you are an individual and your ownership interest in a dwelling passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate and section 118-195 of the ITAA 1997 does not apply.

You calculate your capital gain or capital loss using the formula:

For an ownership interest acquired by the deceased before 20 September 1985, non-main residence days are the number of days in the period from the death until your 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 of the ITAA 1997.

If the deceased acquired their ownership interest before 20 September 1985, total days is the number of days in the period from the death until your ownership interest ends.

Application to your circumstances

The Property was the main residence of your ex-spouse Person B at the time of their death and was not then being used to produce income. However, as you have not disposed of the Property within 2 years of their death, you are not eligible for a full main residence exemption on disposal. Therefore section 118-195 of the ITAA 1997 is not applicable.

To calculate any partial exemption on disposal, you divide non-main residence days (days from Person B's death until you dispose of your ownership interest in the Property) by total days (days from Person B's death until you dispose of your ownership interest in the Property). You then multiply this by the capital gain or loss amount.

Because non-main residence days and total days are equal, any capital gain or loss is not reduced. Therefore, you will be liable for any capital gain incurred from the period of Person B's death until disposal of your ownership interest in the Property.

Question 3

Summary

Person B's date of death is the acquisition date for your ownership interest in the Property acquired on the death of Person B.

Detailed reasoning

Subsection 128-50(2) of the ITAA 1997 provides that where a CGT asset is owned by joint tenants and one of them dies, the survivor is taken to have acquired the individual's interest in the asset on the day the individual died.

Application to your circumstances

As the Property was owned by you and Person B as joint tenants, you are taken to have acquired their interest at the date of their death.