Edited version of private advice

Authorisation Number: 1052063590390

Date of advice: 2 December 2022

Ruling

Subject: CGT - main residence exemption

Question

Can you claim the main residence capital gains tax exemption on disposal of the property?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your parents purchased a property (The Property) in 19XX. Your mother passed away and your father took full possession of The Property. The Property was the main residence for your father from the time of purchase to date of death.

You lived in your father's property at the time of his passing.

As per the last will and testament of your father, The Property was left to you and your sibling.

You continued to live in The Property, rent free, until you moved out to live with your daughter due to The Property being in an unliveable state.

After you moved out, it was decided that The Property was to be sold but there had not been any steps taken to execute your father's estate as they were unaware of the protocol. They then started the process to have it transferred into their names. You and your sibling were not on speaking terms during this time. The transfer was completed and The Property went on the market.

The Property remained vacant from when you moved out until the sale date.

Potential buyers were turned away as there were pending changes on the title.

The Property was eventually sold.

The Property is less than X hectares.

The Property has never produced assessable income.

You have never owned another property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Reasons for Decision

Summary

The Commissioner will allow a partial exemption for deceased estate dwellings on the capital gains from disposal of the property.

Detailed reasoning

Dwelling acquired from a deceased estate

According to the Income Tax Assessment Act 1997 (ITAA 1997) section 118-195 for property acquired by the deceased before 20 September 1985, you will be entitled to disregard any capital gain made on the disposal of the property if:

1.    your ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner; or

2.    the dwelling was, from the deceased's death until your ownership interest ends the main residence of one or more of:

a)    the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or

b)    an individual who had a right to occupy the dwelling under the deceased's will; or

c)    an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary.

In your case, when the deceased died, the property passed to you and your sibling. The property was purchased prior to 20 September 1985 and was the deceased's main residence prior to their death. At no time has the property been used to produce assessable income.

Your ownership interest did not end within 2 years of the deceased's death, as per dot point one. You have not provided any information to indicate that the delay was caused by issues beyond your control, therefore this basis of exemption is not available.

Under dot point two, the property was not your main residence until your ownership interest ended.

You were living at the property as your main residence from the deceased's death for almost 5 years until you were forced to move due to the property being unliveable.

A mere intention to construct or occupy a dwelling as your main residence, without actually doing so, is not sufficient to get the exemption.

Partial exemption for deceased estate dwellings

According to Income Tax Assessment Act 1997 section 118-200 for deceased estate dwellings, you get only a partial exemption (or no exemption) if:

(a) 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

(b) section 118-195 does not apply.

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

where:

CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision.

non-main residence days is the sum of:

(a) if the deceased *acquired the *ownership interest on or after 20 September 1985 - the number of days in the deceased ' s *ownership period when the *dwelling was not the deceased ' s main residence; and

(aa) if the deceased acquired the ownership interest on or after 20 September 1985 and, just before the deceased ' s death, the deceased was an *excluded foreign resident - the number of remaining days in the deceased ' s ownership period; and

(b) 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.

total days is:

(a) if the deceased *acquired the *ownership interest before 20 September 1985 - the number of days in the period from the death until your ownership interest ends; or

(b) if the deceased acquired the ownership interest on or after that day - the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends.

However, you can adjust the formula by ignoring any non-main residence days and total days in the period from the deceased ' s death until your *ownership interest ended, if:

(a) the deceased *acquired the ownership interest on or after 20 September 1985; and

(b) your ownership interest ends within:

(i) 2 years of the deceased ' s death; or

(ii) a longer period allowed by the Commissioner; and

(c) you get a more favourable result by doing so; and

(d) the deceased was not an *excluded foreign resident just before the deceased ' s death.

In your case, under the first part (a) the property passed to you as a beneficiary and part (b) does not apply as the property was not your main residence from the deceased's death until disposal

Using the formula to calculate the capital gain, the non-main residence days is part (b) the number of days the dwelling was not your main residence and total days is part (a) the number of days in the period from the death until your ownership interest ends.

Under point (a) the property passed to you as a beneficiary. You lived in the property and it was your main residence from the deceased's death until 31 March 20XX.

The property remained vacant from 1 April 20XX until date of disposal 23 June 20XX.

Your ownership interest did not end until 7 years after the property ceased being your main residence as it had become unliveable.