Edited version of private advice

Authorisation Number: 1052064167384

Date of advice: 1 December 2022

Ruling

Subject: CGT - deceased estate

Question

Are you entitled to a partial capital gains tax exemption on the disposal of the Property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased purchased the Property prior to 20 September 1985.

The Property was the Deceased's main residence from purchase until their passing.

Under their will, the Deceased left the Property to their children.

From the time of the Deceased's passing, the Deceased's spouse continued to reside in the Property until they passed away.

The Property has not produced any income nor have any major improvements or additions been made to the property.

The Deceased's Executor and Trustee have now sold the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Reasons for decision

Dwelling acquired from a deceased estate

Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in certain circumstances you can disregard the capital gain or loss from an interest in a dwelling that you owned in your capacity as trustee of a deceased estate. However, your ownership interest must end within 2 years of the deceased's death (or within a longer period allowed by the Commissioner), or from the deceased's death until your ownership interest ends the dwelling was the main residence of:

(a) the spouse of the deceased immediately before the death; or

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

(c) an individual to whom the ownership interest passed as a beneficiary

Section 118-200 of the ITAA 1997 allows for a partial exemption if you have an ownership interest in a dwelling in your capacity as trustee of a deceased estate, and section 118-195 of the ITAA 1997 does not apply.

As section 118-195 of the ITAA 1997 does not apply for the reason that the property was not sold on or before the date of the Deceased's spouse's death, a partial capital gain or loss is calculated using the formula stated in subsection 118-200(2) of the ITAA 1997:

CG or CL amount x Non-main residence days

Total days

For an ownership interest acquired prior to 20 September 1985, non-main residence days is the sum of 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. In your case, this is the number of days from when the Deceased's spouse passed away, to the settlement date of the sale.

For an ownership interest acquired prior to 20 September 1985, total days is the number of days in the period from the deceased's date of death until your ownership interest ends. In your case, this is the number of days from the Deceased's death to the settlement date of the sale.

As the property was the main residence of the Deceased's spouse following the Deceased's death, you will be eligible for a partial exemption on disposal of your ownership interest in the property.

In calculating the 'CG or CL amount' in the above formula, subsection 128-15(4) of the ITAA 1997 deems the first element of your cost base for the property is its market value on the date of the Deceased's passing.

Further information about calculating a partial exemption for inherited property can be found by searching ato.gov.au for 'QC 66055'.