Edited version of private advice

Authorisation Number: 1052361529119

Date of advice: 26 February 2025

Ruling

Subject: Capital gains tax

Question 1

Can you disregard any capital gain or capital loss from the dwelling you acquired from the deceased estate that you then transferred your 2/9^th's of an ownership interest to your sibling under a deed of family arrangement on 29 November 2024?

Answer 1

No.

Question 2

Are you entitled to a partial main residence exemption in accordance with section 118-200 of the Income Tax Assessment Act (ITAA 1997).

Answer 2

Yes.

This ruling applies for the following period:

For the year ended XX June 20XX

The scheme commenced on:

XX November 20XX

Relevant facts and circumstances

You (X) are a foreign resident for tax purposes.

Your late parent purchased a property situated at X (the Property) in YYYY.

The Property has been used by your family as a main residence ever since.

Your parent passed away on DDMMYYYY.

According to your parent's Will, the inherited property was divided into X shares, with each of your X siblings acquiring a X/X^th's ownership interest.

You inherited a X/X^th's ownership interest in the Property.

Under the Will, your younger sibling had a right to occupy the Property after your parent died, for a period of X years until DDMMYYYY. Once this specific condition was satisfied, the Property was then able to be sold, and your parent granted you a first right of refusal to purchase the Property at market value as appropriate at any time from the other siblings.

The Property has never been used to produce assessable income.

The land is less than 2 hectares at X square metres.

As per the Will, each of the X siblings have shared all the outgoing costs for the Property such as rates, repairs and maintenance.

Your younger sibling (X) continues to live in the Property as caretaker which was always your parent's wishes once they passed.

Under a Deed of Family Arrangement, X of the X siblings agreed to gift their X/X^th ownership interest to X for nil consideration.

You also agreed to the arrangement and gifted your X/Xth ownership interest to X for nil consideration and they now own X/X^th's of the Property.

The X^th sibling (X) refused to participate in the agreement and still retains a X/X^th's ownership interest in the Property.

The Deed was executed on DDMMYYYY.

You incurred all of the costs of transferring the title such as legal fees and stamp duty which will form part of your cost base.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-10

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 section 116-30

Income Tax Assessment Act 1997 Subdivision 115-A

Income Tax Assessment Act 1997 Subdivision 115-B

Income Tax Assessment Act 1997 section 118-200

Reasons for decision

Section 102-20 of the ITAA 1997 provides that a capital gain or capital loss results from a capital gains tax (CGT) event occurring. CGT event A1 arises when you dispose of a CGT asset (section 104-10 of the ITAA 1997). You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event, or by operation of law (subsection 104-10(2) of the ITAA 1997).

Where you transfer property or gift property for no consideration, the market value substitution rule for capital proceeds pursuant to section 116-30 of the ITAA 1997 applies. If this occurs, you are taken to have received the market value of the CGT asset that is the subject to the event, at the time of the CGT event.

Where a dwelling is acquired from a deceased estate, subsection 118-195(1) of the ITAA 1997 operates to disregard capital gains or capital losses from a dwelling that a deceased person acquired on or after 20 September 1985, and the dwelling was the deceased's main residence just before their death and was not then being used for the purposes of producing assessable income if:

•                Your ownership interest in the dwelling ends within two years of the deceased person's death, and

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

a)             the spouse of the deceased immediately before death; or

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

c)              an individual who brought about the CGT event and the ownership interest in the dwelling had passed to that individual as beneficiary.

Subdivision 118-B of the ITAA 1997 provides for a capital gain or capital loss you make from a CGT event that happens to a dwelling that is a main residence to be disregarded. To be eligible for the main residence exemption, the property must have a dwelling on it, and you must have lived in the property which needs to be on land less than 2 hectares in size.

Where a full exemption is not available a partial exemption is calculated under section 118-200 of the ITAA 1997.

Subdivision 115-A and 115B of the ITAA 1997 operate in calculating a discount capital gain and the relevant discount percentage used for a discount capital gain, including individuals who are foreign tax residents with direct gains.

Application to your circumstances

In your case, your X/Xth ownership interest in the Property ended more than two years after the deceased's death.

The whole period of time when the Property was your parent's main residence is considered in addition to the period of time where your younger sibling had a right to occupy the Property under the Will. However a full main residence exemption under subsection 118-195(1) of the ITAA 1997 is not available as the right to occupy was only for a limited period of time until DDMMYYYY.

A partial exemption is available under subsection 118-200(2) of the ITAA 1997. In your case the non-main residence days used in the formula are considered to be the number of days in the period commencing when the right to occupy expired on DDMMYYYY and ending when you ceased to own your X/Xth's ownership interest in the Property on DDMMYYYY. You were deemed to have received the market value of X/Xth's of the Property value on the date the Deed was executed.

You will need to also consider the application of the formula and the rules to calculate your individual CGT discount percentage which are contained in Subdivisions 115A & 115B of the ITAA 1997 to work out your assessable discount capital gain.