Edited version of private advice

Authorisation Number: 1052049987039

Date of advice: 11 November 2022

Ruling

Subject: CGT - deceased estate - partial exemption

Question 1

Is the estate of Person A entitled to apply a partial capital gains tax (CGT) exemption on the disposal of the property?

Answer

Yes.

Question 2

Does the cost base of the property include Person A's cost base as at the time they passed away?

Answer

Yes.

This private ruling applies for the following period:

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts

Person A (Person A) and Person B (Person B) purchased a property as joint proprietors after 20 September 1985 for their child, Person C (Person C) to reside.

The property was at no times the main residence of person A and Person B.

Person B predeceased Person A and they became the sole surviving owner of the property on DD MM YYYY.

Person A made a will on DD MM YYYY.

Person A passed away on DD MM YYYY.

An organisation was appointed (Organisation A) was the executor of the estate.

Due to Person C's age and condition of XXXX XXXX Organisation A was appointed their financial administrator by an order issued by a court on DD MM YYYY.

Person C was relocated to a nursing home on DD MM YYYY due to XXXX XXXX.

Person C passed away on DD MM YYYY.

Person C did not have an ownership interest in any other property and continually maintained the property as their main residence from the commencement of the life tenancy until their death.

Organisation A contacted the remainderman beneficiaries of Person A's estate in MM YYYY and sought their instructions regarding the dwelling.

The remainderman beneficiaries collectively decided that they would like to sell the property and receive their entitlements in cash. This was communicated to organisation A in MM YYYY.

Organisation A took possession of the property and commenced the process to put the property on the market for sale.

Organisation A arranged for the dwelling to be cleaned. Sought clearance from State revenue office, sworn valuations and engaged the services of a real estate in YY and MM YYYY respectively.

The property was advertised for sale and was sold at public auction a short time later.

The settlement for the sale was completed on DD MM YYYY.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20

Reasons for decision

Detailed reasoning

Partial exemption

Section 118-200 of the ITAA 1997 provides for a partial exemption where an individual receives an ownership interest in a dwelling or a dwelling as a beneficiary of a deceased estate, or you owned it as the trustee of a deceased estate. A taxpayer may receive a partial exemption if:

(a)  They are an individual and their ownership interest in a dwelling passes to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and

(b)  Section 118-195 of the ITAA 1997 does not apply, but there are some main residence days.

You held the dwelling as trustee of Person A's Estate. In addition, section 118-195 of the ITAA 1997 does not apply because Person A's acquired it after 20 September 1985 and it wasn't their main residence when they died.

Therefore, as you meet the conditions for section 118-200 of the ITAA 1997 to apply, you are eligible for a partial exemption. The relevant formula in subsection 118-200(2) for determining how much of a capital gain or loss is not exempt is relevant.

Capital gain or capital loss amount x (non-main residence days/ total days)

Total Days

Where:

•                     Capital gains/loss amount = The capital gain or capital loss is the amount made from the disposal of the dwelling

•                     Total days in ownership Period = From DD MM YYYY to DD MM YYYY when the property was sold.

•                     Main residence days = Start of Life tenancy on DD MM YYYY to date of death of life tenant on DD MM YYYY

•                     Non-main residence days = Total days less main residence days

This calculation includes the adjustment to the 50% interest that passed from Person B to Person A under section 118-205 of the ITAA 1997.

CGT cost base

If you acquire a CGT asset as the beneficiary or trustee of a deceased estate that the deceased person acquired on or after 20 September 1985 and the dwelling was not their main residence at the time they passed away, your cost base for the asset is the deceased persons cost base for the asset on the day they passed away.

The dwelling was acquired by Person A after 20 September 1985 and was not their main residence before they passed away, therefore you are not entitled to use its market value as at the date of Person A's death in your capital gains calculation on the disposal of the property.

The first element of the cost base for the asset will be Person A's cost base as at the date that he passed away.