Edited version of private advice

Authorisation Number: 1052316206998

Date of advice: 14 October 2024

Ruling

Subject: Capital gains tax

Question 1

Are you entitled to the main residence exemption from capital gains tax (CGT) on the disposal of your property, for your initial ownership interest?

Answer 1

Yes. Section 118-100 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.

Under subsection 118-110(1) of the ITAA 1997; you are eligible for the exemption if:

a)             you are an individual; and

b)             the dwelling was your main residence throughout your ownership period; and

c)              the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.

In your case, you satisfy the conditions under subsection 118-110(1) of the ITAA 1997 and therefore you are entitled to the main residence exemption from CGT on the disposal of your property, for your initial ownership interest.

Question 2

Will the capital gain for the same property be disregarded for the ownership interest you inherited from your late parent?

Answer 2

Yes. Section 118-195 of the ITAA 1997 provides a CGT exemption to beneficiaries and trustees where a CGT event happened to a dwelling they acquired from a deceased estate.

Subsection 118-195(1) of the ITAA 1997 provides that a capital gain or loss may be disregarded where a CGT event occurs disposing of a dwelling passed to a beneficiary of a deceased estate within 2-years of the deceased's date of death, or, from the deceased's death until the disposal, the dwelling was the main residence 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)              the individual to whom the ownership interest is transferred as a beneficiary and is then sold by that individual.

Additionally, if the property was acquired after 20 September 1985, the dwelling must have been used as the deceased's main residence before their death and not used to produce assessable income.

In your case, your parent acquired the ownership interest after 20 September 1985, the dwelling was their main residence and it was not used for the purpose of producing assessable income. Additionally, you satisfy part C above.

Therefore, you are eligible for the CGT exemption under section 118-195 of the ITAA 1997.

This ruling applies for the following period:

DD MM YY

The scheme commences on:

DD MM YY

Relevant facts and circumstances

On XXXX you purchased land (the property).

On XXXX you were registered as having an ownership interest with your parent and your sibling.

Your parent subsequently obtained a bank loan to build the dwelling at the property. On XXXX a mortgage was registered with XXXX.

You moved into the house in early XXXX immediately after the dwelling was built.

You have always lived at the property and this is your main residence.

On XXXX your parent passed away.

Your parent always lived at the property and this was their main residence.

You and your sibling inherited your parent's ownership interest. You now have a XX% ownership interest.

The property was not used for the purpose of producing assessable income at any point in time.

The property has been sold and the proposed settlement date is XXXX.

Assumption

This ruling is binding based on the fact that the property will settle on XXXX (the proposed settlement date) - or before XXXX (if the settlement date changes).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

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