Edited version of private advice

Authorisation Number: 1052118983052

Date of advice: 24 May 2023

Ruling

Subject: CGT - absence choice

Question

Can you disregard any capital gain or loss on disposal of the Property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A (the Deceased) and Person B purchased a residential property prior to 20 September 1985 (the Property).

Person B died after 1985, and the Deceased acquired Person B's share of the property as a joint tenant.

Fewer than six years ago, the Deceased moved into residential aged care.

Prior to this, the Deceased had always resided at the Property.

Capital improvements were made to the property. The capital improvements cost less than $XXX.

The property was subsequently used to produce assessable income for a period of less than six years prior to the death of the Deceased.

The Deceased died recently.

A contract for sale of the Property will settle shortly.

You will exercise the absence choice to nominate the Property as the Deceased's main residence from when they entered residential aged care.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-170

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-197

Income Tax Assessment Act 1997 section 128-15

Reasons for decision

Summary

On disposal of the Property, you can disregard any capital gain or loss.

Detailed reasoning

Section 108-70 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital improvement to a pre-CGT asset may be treated as a separate CGT asset when a CGT event happens if its cost base (assuming it is a separate CGT asset) is more than the improvement threshold for the income year that the event happens, and is more than 5% of the capital proceeds from the event.

Section 118-195 of the ITAA 1997 provides that for an ownership interest in a dwelling acquired by the Deceased on or after 20 September 1985, that was the Deceased's main residence and not used to produce assessable income just before their death, any capital gain or loss can be disregarded if your ownership interest ends within two years of the deceased's death. Your ownership interest ends at the time of settlement of the contract of sale.

Section 118-195 of the ITAA 1997 provides that for an ownership interest in a dwelling acquired by the deceased before 20 September 1985, any capital gain or loss can be disregarded if your ownership interest ends within two years of the deceased's death.

Section 118-197 provides that Subdivision 118-B of the ITAA 1997 applies to surviving joint tenants as if the ownership interest of the deceased joint tenant passed to them as the beneficiary of a deceased estate.

Section 118-145 of the ITAA 1997 provides that a taxpayer can make a choice to continue to treat a dwelling as their main residence even though they no longer live in it. Where the dwelling is used to produce income, the choice is effective for a period of up to six years. Where the individual has passed away, this choice can be made by the executor of their estate.

Application to your circumstances

The Deceased acquired their initial 50% ownership interest as a joint tenant prior to 20 September 1985. As the ownership interest will be disposed of within two years of the death of the Deceased, the conditions in subsection 118-195(1) of the ITAA 1997 are met. You can disregard any capital gain or loss on disposal of this ownership interest.

The Deceased acquired their second 50% ownership interest as the remaining joint tenant on the death of their spouse after 20 September 1985. In accordance with section 118-197 of the ITAA 1997, they are taken to have acquired this interest as if it passed to them as the beneficiary of a deceased estate. By exercising the absence choice in section 118-145 of the ITAA 1997, any use of the property to produce assessable income will be disregarded under section 118-190 of the ITAA 1997. As the ownership interest will be disposed of within two years of the death of the Deceased the conditions in subsection 118-195(1) of the ITAA 1997 will be met. You can disregard any capital gain or loss on disposal of this ownership interest.

The improvement threshold for the 20XX-20XX income year is $XXX. As the cost base of your capital improvement would be less than this if it were a separate CGT asset, the improvement is not treated as a separate CGT asset under section 108-70 of the ITAA 1997.