Edited version of private advice

Authorisation Number: 1052126881285

Date of advice: 15 June 2023

Ruling

Subject: CGT - deceased estate

Question

Is any capital gain or loss you make on disposal of your interest in the Property disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

The deceased, your parent, passed away in 2019.

The deceased acquired ownership of the Property after 1985.

The Property is less than two hectares.

The Property was the deceased's main residence just before death.

The deceased's will directed the residue of their estate to be divided equally as tenants in common between their two children, you and your sibling.

There was no specific provision in the will that allowed for either child to reside in the Property.

Probate was granted a couple of months after the deceased passed away.

The Property was transferred to the beneficiaries the following month.

The Property was not your main residence.

Your sibling resided at the Property until it was sold.

The Property was never used to produce income.

A contract for sale of the Property was entered in to with settlement due more than two years after the deceased passed away.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Income Tax Assessment Act 1997 section 128-20

Reasons for decision

Full main residence exemption

Subsection 118-195(1) of the ITAA 1997 states that if you owned a dwelling that passed to you as a beneficiary of a deceased estate (or in your capacity as trustee of a deceased estate) then you disregard any capital gain or loss made on the disposal of the property if:

• the property was acquired by the deceased before 20 September 1985; or
• the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income

and

• your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances); or
• 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; or

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

c)    if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.

Under section 128-195 of the ITAA 1997 you are taken to have acquired your 50 percent ownership interest in the property on the date the deceased passed away.

The property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income.

You did not dispose of your ownership interest within two years of the deceased's passing. Although the dwelling was occupied by your sibling until your ownership interest ended, they did not have a right to occupy the dwelling under the will. When you disposed of your interest in the dwelling you were the individual who brought about the relevant CGT event, however, the dwelling was not your main residence.

You do not satisfy the conditions to be eligible for a full main residence exemption under section 118-195 of the ITAA 1997. The capital gain cannot be disregarded in the income year when the CGT event occurred.

Partial main residence exemption

A partial man residence exemption is available under section 118-200 of the ITAA 1997 where the dwelling was the main residence of one or more 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)    if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.

As discussed above in regard to the full main residence exemption, none of these criteria apply to you. You are not entitled to a partial main residence exemption.