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Edited version of private advice
Authorisation Number: 1052227218764
Date of advice: 7 March 2024
Ruling
Subject: CGT and deceased estates
Question
Did the estate of Person B make a capital gain on the sale of the property?
Answer
No
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commenced on:
XXXX
Relevant facts and circumstances
Person A and Person B were married.
They jointly purchased a property before 20 September 1985 as tenants in common in equal shares.
Person B died.
Person A was named as executor and obtained probate.
Person B's will left the residue of their estate (which included their interest in the property) to the Trustees on trust to pay the income to Person A during their lifetime, and after Person A's death to divide the capital in shares between Person B's children as specified by the will.
Person A continued to live in the house until they moved into an aged care home.
Person A died approximately 6 years after Person B.
Person A's will named Person C as executor.
Person C obtained probate for the estate.
Person C obtained Letters of Administration of Person B's estate trust.
The property was sold approximately 8 months after Person A died.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-145
Income Tax Assessment Act 1997 subsection 118-145(2)
Income Tax Assessment Act 1997 subsection 118-145(4)
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
Section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a taxpayer to continue to treat a dwelling as their main residence even if it ceases to be so. No other dwelling can be treated as their main residence during the relevant period (subsection 118-145(4) of the ITAA 1997). If the dwelling was used to produce income after it stopped being the main residence of the taxpayer, then the maximum period it can be treated as their main residence is six years (subsection 118-145(2) of the ITAA 1997).
Any capital gain or loss on an interest in a dwelling disposed of by a trustee of a deceased estate is fully exempt if at least one of the items in column 2 and at least one of the items in column 3 of the table in subsection 118-195(1) of the ITAA 1997 are satisfied. In the circumstances here, the deceased (Person B) acquired their interest in the property before 20 September 1985 meaning item 2 of column 2 in the table in subsection 118-195(1) of the ITAA 1997 is satisfied.
As Person A treated the dwelling as their main residence after she moved to an aged care home until her death under section 118-145 of the ITAA 1997, then item 2(a) in column 3 of the table in subsection 118-195(1) of the ITAA 1997 is satisfied as the dwelling was, from Person B's death until the dwelling was sold, the main residence of their spouse.
Therefore, the requirements of section 118-195 of the ITAA 1997 are satisfied and the capital gain or loss made on the disposal of Person B's interest in the dwelling is disregarded.