Edited version of private advice

Authorisation Number: 1052340480471

Date of advice: 11 December 2024

Ruling

Subject: CGT - deceased estate

Question 1

Will the Commissioner treat the entire Property (both Upstairs and Downstairs) (collectively, the Property) as a single dwelling for the purposes of section 118-115 of the Income Tax Assessment Act 1997 (ITAA1997) on the basis that both properties are used together as one place of residence?

Answer 1

Yes.

Question 2

Was the Property occupied by someone who had the right to occupy the property under the deceased's Will for the purpose of column 3, item 2(b) in the table in subsection 118-195(1) of the ITAA 1997?

Answer 2

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July XXXX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased was an Australian tax resident.

The deceased was married to their spouse who passed away over 20 years before the ruling period.

The deceased and their spouse have three children (the Children).

The Children are the executors of the estate of the Deceased.

After 20 September 1985, the deceased and their spouse acquired the Upstairs Property as joint tenants.

The Upstairs Property transferred entirely to the Deceased as the surviving joint tenant when their spouse died. The Deceased still owned the Upstairs Property at the date of their death.

The Downstairs property was acquired by the Deceased approximately 3 years after the Upstairs property was acquired. The Deceased still owned the Downstairs Property at the date of their death.

The Downstairs Property was used to produce income from the time it was acquired for approximately 4 years. At the end of that period, the Deceased moved into the downstairs property with their Children and used it as their main residence until their death.

The Upstairs Property was used to produce income from the time it was acquired for approximately 12 years. After that period, the Deceased expanded their living area from the Downstairs Property and also moved into the Upstairs property and used it as their extended main residence until their death.

The expansion into the Upstairs Property was done with the intention of keeping the family under one roof following the death of the Deceased's spouse. At the time the family moved into the Upstairs property, they lived together as a single family unit.

At all relevant times, the family had unrestricted access to the entire Property, each family member had keys to both the Upstairs Property and the Downstairs Property.

Both properties operate off a single alarm system across the entire property.

The family has significant shared use of both the Upstairs and Downstairs properties.

Furniture from the Downstairs Property was moved into the Upstairs Property for the family to use, including several beds and lounges.

All costs for the Property were incurred and paid for entirely by the Deceased, including council rates, water rates, water usage, electricity, heating, internet etc. Further, all repairs and maintenance costs for the Property were incurred and paid for by the Deceased. The Children residing in the Property did not pay rent to the Deceased, nor were they required to contribute to any costs of the Property.

The Property is strata titled with one property on top of the other. Thus, the properties are in close proximity allowing for their joint use as a single dwelling.

The Property does not have an internal stairwell, however, both properties are connected by undercover stairwells in both the front and back of the property.

Since the Deceased's death, the Children have continued to reside in the Property (both the Upstairs Property and the Downstairs Property) and use it as their main residence.

The Will

The Deceased's Will names their three children as executors and trustees of the will.

The Deceased's Will stated the trustee/executor had the power to do the following under clause 8.6:

8.6 to grant, obtain or renew any leases or tenancies of my estate or the trust or any part of it to any beneficiary under this will or to any other person and to accept surrender thereof

Sale of the property

Approximately two years and nine months after the Deceased died, the Children as Executors and Trustees entered into a single contract for sale of the Property, being a combined sale of both the Upstairs and Downstairs units to a single purchaser.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-195

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

Income Tax Assessment Act 1997 item 2(b) sub 118-195(1)

Reasons for decision

Question 1

Will the Commissioner treat the entire Property (both Upstairs and Downstairs) (collectively, the Property) as a single dwelling for the purposes of section 118-115 of the Income Tax Assessment Act 1997 (ITAA1997) on the basis that both properties are used together as one place of residence?

Summary

Yes, based on the information provided the commissioner accepts that the Upstairs Property and Downstairs Property were used as a single dwelling by the family.

Detailed reasoning

Section 118-115 of the ITAA 1997 provides that a dwelling includes:

(a)           a unit of accommodation that:

(i)            Is a building or is contained in a building; and

(ii)           consists wholly or mainly of residential accommodation; and

(b)           A unit of accommodation that is a caravan, houseboat or other mobile home; and

(c)           Any land immediately under the unit of accommodation.

'Dwelling' is not otherwise defined and so takes on its ordinary meaning. The Macquarie Dictionary defines 'dwelling' as 'a place of residence or abode; a house'.

In Campbell v O'Sullivan [1947] SASR 195 at 201, May J stated that:

'... 'dwelling' ordinarily signifies a place of abode or residence, a tenement, habitation, or house, which premises a person or persons are using as a place for sleeping and usually for the provision of some meals.'

Taxation Determination TD 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? provides the Commissioners view on whether two units of accommodation can be considered a single dwelling.

Paragraph 4 of TD 1999/69 lists some of the factors that are relevant in determining whether units of accommodation are used together as one place of residence and states:

4. Whether two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling' is a question of fact that depends on the particular circumstances of each case. Factors relevant in considering whether units of accommodation are used together as one place of residence or abode include:

(a)           (a)whether the occupants sleep, eat and live in them;

(b)           (b)the distance between and the proximity of the units of accommodation;

(c)           (c)whether the units are connected;

(d)           (d)whether the units are capable of being sold separately;

(e)           (e)the extent to which the daily activities of the occupants in the units are integrated;

(f)            (f)how the units are shared by the occupants; and

(g)           (g)how costs of the units are shared by the occupants.

The presence or absence of any of these factors are not necessarily determinative as all the facts and circumstances of each particular case needs to be considered as a whole.

Application to your circumstances

In this case, based on the information provided the Upstairs Property and the Downstairs Property are considered to be one 'dwelling' for the purpose of section 118-195 of the ITAA 1997.

The factors that have contributed to this decision are:

•                     both properties were used for the occupants to sleep, eat and live in

•                     there is a close distance between the two properties and unrestricted access between the two properties

•                     the taxpayer and their family integrate their daily activities over both properties

•                     all utility accounts have remained with the taxpayer

•                     the property operates off a single alarm system, and

•                     the Upstairs and Downstairs properties have been treated as a single dwelling for land tax purposes.

Question 2

Was the Property occupied by someone who had the right to occupy the property under the deceased's Will for the purpose of column 3, item 2(b) in the table in subsection 118-195(1) of the ITAA 1997?

Summary

Yes, the deceased's adult children had a right to occupy the property under the deceased's Will as the Will provided the Executors the power to 'grant, obtain or renew any leases or tenancies'.

Detailed reasoning

Subsection 118-195(1) of the ITAA 1997 disregards capital gains and capital losses made from certain CGT events that happen in relation to a dwelling that was the deceased's main residence just before they died and was not being used to produce assessable income (for dwellings acquired on or after 20 September 1985), or was acquired by the deceased before 20 September 1985.

The exemption in subsection 118-195(1) of the ITAA 1997 is provided in limited circumstances. Among these include item 2(b) of column 3 of the table in subsection 118-195(1) which provides an exemption if:

the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:...

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

ATO ID 2003/109 considers the operation of subsection 118-195(1) of the ITAA 1997 and relevantly states:

An individual would be considered to occupy a dwelling under the deceased's will if it was in accordance with the terms of the will. This would also be the case if it was in pursuance of the will or under the authority of the will.

Paragraphs 1 and 3 of Taxation Determination TD 1999/74 Income tax: capital gains: in what circumstances does a trustee of a deceased estate acquire an ownership interest in a dwelling 'under the deceased's will' for the purposes of subsection 118-210(1) of the Income Tax Assessment Act 1997? (TD 1999/74) state:

(1)           In its context in subsection 118-210(1) of the Income Tax Assessment Act 1997, the preposition 'under' requires a connection between the trustee's acquisition of an ownership interest in a dwelling and the deceased's will. The connection required is not a strict one

....

(3)           The trustee also acquires an interest under the deceased's will if they acquire it in pursuance of the will or under the authority of the will (Evans v. Friedmann (1981) 53 FLR 229 at 238).

Application to your circumstances

The relevant provision of the will provides the Executor of the deceased estate with the power to grant leases and tenancies over any part of the estate. The three adult children, being joint Executors of the deceased estate, lived in the property between the deceased's date of death and the time the property was sold. They were authorised to allow each other to stay in the property under the power provided to the Executors in the Will.

Therefore, the tenancy of the property was granted 'under the will' for the purpose of item 2(b) in Column 3 of the table in subsection 118-195(1) of the ITAA 1997.