Edited version of private advice

Authorisation Number: 1052101140534

Date of advice: 26 May 2023

Ruling

Subject: Capital gains tax - deceased estate

Question

In relation to the property situated at X (Property B) and where the taxpayer enters to the transaction as the Trustee of The Estate of X, does subsection 118-210(3) of the Income Tax Assessment Act 1997 (ITAA 1997) exempt the trustee from capital gains tax on disposal of the property?

Answer

Yes.

This ruling applies for the following period:

Period ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

X (the deceased) died on DDMM19YY and left a Will (the Will).

X (the Trustee) was the appointed Executor of The Estate.

The deceased lived at X (Property A) as their main residence with their friend X (the deceased's friend) prior to and up to their date of death in 19XX.

The deceased's friend was given the right of occupancy for life in Property A as per clauses 5(a-c) of the Will which stated:

The said X may live in the house as long as X wishes provided that X pay the rates and taxes levied on the property, the premiums on any insurance policies taken out by my Trustee on the property and keeps it in repair to his satisfaction;

Until the (sic) the X has, in the opinion of my Trustee, ceased to live in the house permanently or to comply with the conditions of X right of occupation, it shall not be sold without X consent;

At the written request of the said X, my Trustee shall sell the house and from the nett proceeds of such sale remaining after payment of all expenses connected with such sale buy another residence and pay all expenses involved in such purchase and the same provisions shall apply to that residence as those expressed in this clause;

Property A was transferred into the names of the four beneficiaries on DDMM19XX.

The deceased's friend continued to reside in Property A as their main residence, paying all outgoings until 20XX when they requested to move to a smaller property.

Property A was then sold, and Property B was purchased in MM20XX from the proceeds of Property A.

The land title to Property B was held in the Trustee's name and the land was less than two hectares in area.

As per clause 5(d) of the Will:

any cash balance arising from the sale and purchase shall form part of the residue of my Estate.

The excess proceeds from the sale of Property A was then paid as a distribution to the four beneficiaries of X (The Estate).

The deceased's friend lived in Property B as their main residence paying all outgoings until they gave their consent that the property may be sold. Disposal of Property B occurred in the 20XX/XX income year.

As per clause 5(e) of the Will:

When the said X shall cease to live permanently in the house or in any new residence provided in substitution for the house then the house or the new residence shall form part of the residue of my Estate.

The proceeds of the sale of the Property B were then distributed equally between the four beneficiaries of The Estate as per the requirements of the Will.

The deceased's friend lived in Property B as their main residence for the entire ownership period and the property was never used for income producing purposes.

Relevant legislative provisions

Taxation Administration Act 1953 section 359-5 of Schedule 1

Income Tax Assessment Act 1997 section 118-210

Income Tax Assessment Act 1997 subsection 118-210(1)

Income Tax Assessment Act 1997 subsection 118-210(3)

Reasons for decision

Having considered your circumstances and the relevant factors, the Commissioner agrees the property was acquired under the Will of the deceased and in accordance with our view in Taxation Determination TD 1999/74 Income tax: capital gains: in what circumstances does a trustee of a deceased estate acquire an ownership interest in a dwelling 'under the deceased's will' for the purposes of subsection 118-210(1) of the Income Tax Assessment Act 1997?

The trustee acquired the ownership interest in the property for occupation by an individual. From the time the ownership interest was acquired until the time of the CGT A1 disposal event, the dwelling was the main residence of the individual who had a right of occupancy. The requirements in subsection 118-210(3) of the ITAA 1997 are satisfied and the trustee can disregard any capital gain or capital loss made on the disposal.

Law Administration Practice Statement PS LA 2003/12 Capital gains tax treatment of the trustee of a testamentary trust confirms the Commissioner's longstanding administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative for capital gains tax purposes.