Edited version of private advice

Authorisation Number: 1052350168582

Date of advice: 25 February 2025

Ruling

Subject: Commissioner's discretion - deceased estate

Question 1

Does the full main residence exemption apply to the disposal of the second Property, pursuant to section 118-210 of the Income Tax Assessment Act 1997 ('ITAA 1997') that, in accordance with the deceased's Will, was acquired for occupation by an individual?

Answer 1

No.

This private ruling applies for the following period:

Year ending XX June 20XX

The scheme commenced on:

XX July 20XX

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 had XX% ownership of the first Property.

The deceased moved into the first Property in June 19XX.

The deceased resided at the first Property until their death in 20XX.

Probate was granted in or around May 20XX.

The deceased named their two children as trustees and executors per the Will dated X May 20XX.

The Will stipulated that the first Property be bequeathed to the executors to be held on trust to allow the deceased's spouse to reside there until their death.

The Property was subsequently transferred into the names of the executors to be held in trust per the Will of the deceased.

The Will further stipulated that should the deceased's spouse choose not to reside in the first Property, the executors are required to purchase a new property of approximately the same value as the first Property. The same conditions as to the right to reside would then apply to the new property.

The deceased's spouse chose to return to their hometown.

Subsequently, the executors sold the first Property, with settlement occurring in October 20XX.

The executors then purchased the second Property in December 20XX.

The deceased's spouse resided in the second Property until they moved into an aged care home in or around June 20XX.

The second Property was subsequently put on the market for sale.

The executors then sold the second Property in June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-210

Reasons for decision

Summary

The executors are entitled to a partial main residence exemption. The executors will be required to calculate any capital gain or capital loss made on the disposal of the second Property having regard to the number of days that the second Property was not the main residence of the deceased's spouse (that is, from the date the second Property was vacated until such time the CGT event happened).

Detailed reasoning

Section 118-210 of the ITAA 1997 applies if you are the trustee of a deceased estate and, under the deceased's Will, you acquire an ownership interest in a dwelling for occupation by an individual. The Commissioner considers that the words "trustee of a deceased estate" as used in section 118-195 of the ITAA 1997 are not limited to a legal personal representative but include the trustee of a testamentary trust.

This view is supported by comments made in the Explanatory Memorandum (EM) to the Taxation Laws Amendment Bill 1990 which introduced changes to former section 160ZZQ of the Income Tax Assessment Act 1936 to provide an exemption for the period a dwelling was occupied by an individual under the terms of the deceased's will. The EM provided:

"The amendments are being made to allow the sole or principal residence exemption to apply to the dwelling of a deceased person for any period since the date of the deceased person's death during which the dwelling had been the sole or principal residence of the spouse of the deceased person or of a person who had the right to occupy the dwelling (life tenant) under the terms of the deceased person's will. At present no account is taken of the time during which a dwelling owned by a trustee of a deceased person's estate was the sole or principal residence of a life tenant."

Pursuant to 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? A trustee acquiresan ownership interest in a dwelling under the will of a deceased person for the purposes ofsection 118-210 if the interest is acquired in accordance with the terms of the will, or in accordance with the terms of the will as modified by any court order, or in pursuance of the will or under the authority of the Will (Evans v. Friedmann (1981) 53 FLR 229 at 238).

Subsection 118-210(3) of the ITAA 1997 provides that if you receive money or property for a CGT event happening to such a dwelling the trustee does not make a capital gain or capital loss if the dwelling was the main residence of the individual from the time the trustee acquired an ownership interest in it until the time of the event. For the purposes of the provision only those CGT events listed in subsection 118-210 of the ITAA 1997 are relevant.

Subsection 118-210(4) of the ITAA 1997 provides that if the dwelling was the main residence of the individual during part only of that period, the trustee makes a capital gain or capital loss worked out using the formula:

Capital gain or capital loss amount x Non-main residence days/Days in that period

The non-main residence days in this formula are the number of days in the period referred to in subsection 118-210(3) of the ITAA 1997 when the dwelling was not the individual's main residence.

Application to your circumstances

In your situation, the second Property was acquired in pursuance of the Will of the deceased and was the main residence of the deceased's spouse up until the date they vacated the Property. The CGT event happened when the executors entered into the contract to dispose of the dwelling and subsequently received money as a result.

The executors are therefore entitled to a partial main residence exemption. The executors will be required to calculate any capital gain or capital loss made on the disposal of the second Property having regard to the number of days that the second Property was not the main residence of the deceased's spouse (that is, from the date the second Property was vacated until such time the CGT event happened).