Edited version of private advice

Authorisation Number: 1052302428619

Date of advice: 9 September 2024

Ruling

Subject: CGT - main residence exemption

Question 1

Can you disregard any capital gain or loss on the XX% ownership interest in the dwelling vested to you on the date of death under subsection 118-195 of the Income Tax Assessment Act (ITAA 1997)?

Answer 1

Yes.

Question 2

Are you entitled to the main residence exemption on your XX% ownership interest in the dwelling under subsection 118-110 of the ITAA 1997?

Answer 2

No.

This ruling applies for the following period

Year ended XX June 20XX

The scheme commenced on

XX July 20XX

Relevant facts and circumstances

We previously made a private ruling on XX September 20XX, but you have informed us of a change in your circumstances and asked for a replacement private ruling.

The deceased acquired residential property located at Property A after XX September 19XX.

The property was situated on less than 2 hectares of land (668m2).

On the XX November 19XX, the property was acquired as joint tenants between the deceased and their Child A.

In April 20XX, the deceased was diagnosed with a medical condition, at this time they decided to formalise the family understanding Child A would be removed from the title and Child B would jointly own the property with the deceased.

The transfer of the XX% title in the property was on the basis that the funds would be put aside to support Parent A, with aged care support, this remains the case whilst your Parent A is still alive.

On the XX April 20XX, the title ownership was changed with Child A XX% ownership in the property transferred to Child B.

On the XX January 20XX, the deceased passed away.

When the deceased passed, their XX% ownership interest in the dwelling vested to Child B, with you now holding XXX% title ownership in the property as the only surviving joint tenant.

In February 20XX, a market valuation was not conducted, as the property passed to you by way of joint tenancy.

The property was used for main residence purposes, as your Parent A was XX years when the deceased passed, you made the decision for your Parent A to reside at the property until they moved to aged care in early 20XX.

Your Parent A was living in the property in an undocumented "life interest" situation. During this time, they maintained the house, paid rates, electricity as planned prior to the deceased passing.

Before the house was actively marketed for sale you have not put any of your personal funds towards the expenses for the property.

You incurred expenses of approximately $XX,XXX to get the property ready for sale this included:

•                     purchasing and installation of new lights, fans, and fire alarms

•                     removal of carpets and polishing floors

•                     cleaning, painting the inside of the house and front exterior wall.

•                     in previous years, the following repairs were conducted such as a new hot water cylinder, venetian blinds, kitchen, and bathroom updates.

On the XX March 20XX, a contract was signed for the sale of the property for $XXX,XXX.

All proceeds of the property were provided to you to ensure the ongoing care and support for your Parent A.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-195(1)

Income Tax Assessment Act 1997 subsection 118-110(1)

Income Tax Assessment Act 1997 section 128-50

Reasons for decision

Issue 1

Question

Can you disregard any capital gain or loss on the XX% ownership interest in the dwelling vested to you on the date of death under subsection 118-195(1) of ITAA 1997?

Summary

As the property remained the main residence of the Parent A and has not been used for income producing activities, any capital gain or loss on your XX% ownership interest in the dwelling that has vested to you on the date of death can be disregarded.

Detailed reasoning

A capital gain or capital loss may be disregarded where a capital gains tax event happens to a dwelling if you owned it as the trustee of beneficiary of the deceased estate.

If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership in the dwelling is disregarded if:

•                     they are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate

•                     the deceased acquired the ownership interest on or after XX September 19XX 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

•                     their ownership interest within two years of the deceased's death, or within a longer period allowed by the Commissioner.

In your case, the deceased acquired the property after XX September 19XX. The property was the deceased's main residence until just before they passed away and was not used to produce assessable income at that time. As you were joint tenants their ownership interest in the dwelling vested to Child B on the date of death.

The dwelling remained the main residence of Parent A until they moved into an aged care facility and was not used for income producing activities in this time. Therefore, any capital gain or loss made on the share vested to you on date of death, can be disregarded under section 118-195 of the ITAA 1997.

Issue 2

Question

Are you entitled to the main residence exemption on your XX% ownership interest in the dwelling under section 118-110 of ITAA 1997?

Summary

As this property was not your main residence during your period of ownership XX% of any capital gain or loss made on the sale of the property cannot be disregarded.

Detailed reasoning

Subsection 118-110(1) of ITAA 1997 sets out the requirements in which a capital gain or capital loss made from a CGT event happening in relation to dwelling, or a taxpayers ownership interest in it, will be disregarded.

Essentially, the capital gain or capital loss will be disregarded where:

•                     the entity involved is an individual

•                     the dwelling was the individual's main residence throughout the ownership period

•                     the individual did not acquire the 'ownership interest' either as a beneficiary or a trustee of a deceased estate, and

•                     the CGT event is a 'relevant' CGT event.

As mentioned above in Question 1, XX% of the ownership interest in the dwelling vested to you on the date of death as you had a joint ownership interest in the property with the deceased. The XX% interest in the property you acquired from Child A did not pass to you as a beneficiary of a deceased estate. Even though the dwelling remained the main residence of Parent A until they moved into an aged care facility, the dwelling was not your main residence throughout your ownership period.

You never had the intention to profit from the property, but it was a strategy to ensure that ongoing care and support could be provided for your aging parents. The transfer of the property to you was on the basis that the funds would be put aside to support Parent A with their aged care requirements. Which remains the case whilst Parent A is still alive.

Even though the property was used for main residence purposes, this was never your main residence throughout your ownership period as a joint tenant. Therefore, you will not be eligible for the main residence exemption, and you cannot disregard 50% of any capital gain or loss on the sale of the property under subsection 118-110(1) of ITAA 1997.

You should note that the first element of your cost base for the XX% interest transferred from Child A to you is its market value of the interest on the XX April 20XX. The cost of repairs can also be included in the cost base of the property.

You are entitled to a XX% CGT discount on your XX% share of any capital gain as the property was held by you for more than XX months as an Australian resident for tax purposes.