Edited version of private advice

Authorisation Number: 1052379482401

Date of advice: 01 April 2025

Ruling

Subject: CGT - deceased estate

Question 1

Does section 118-210 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard the capital gain or loss made on disposal of the dwelling?

Answer 1

No, there will be a capital gain or loss made by the trustee for the period the dwelling was not used as the main residence by the beneficiaries.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away in 20XX.

Clause 7 of the deceased's Will provided a sum to each of three named beneficiaries as shall be living at the deceased's date of death and who attain the age of 30 for their sole use and benefit absolutely.

Clause 8 of the Will granted the residuary of the estate to the trustees upon trust to pay the debts, funeral and testamentary expenses of the estate and to hold the balance on trust for a named beneficiary, and if that beneficiary predeceased the deceased, then to be held on trust for the three named beneficiaries mentioned in Clause 7.

Clause 13 of the Will declared that the Trustees are empower in their sole discretion to pay or apply the whole or parts of the income or capital to which any infant beneficiary is entitled to under the Will to their parent or guardian or to any other person if it is for the purpose of the beneficiary's maintenance, education, benefit, support, or advancement in life.

A Testamentary Trust was established under Clauses 7, 8 and 13 of the Will.

The testamentary trust purchased a residential property from an associated person at market value approximately 2 years after the deceased died.

The property served as the main residence for the three named beneficiaries for approximately six years. After they moved out the house remained vacant and was not rented prior to sale.

The property was sold by the trust approximately 12 months after the beneficiaries moved out.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-210

Income Tax Assessment Act 1997 subsection 118-210(1)

Income Tax Assessment Act 1997 subsection 118-210(3)

Income Tax Assessment Act 1997 subsection 118-210(4)

Reasons for decision

Section 118-210 of the ITAA 1997 provides for what happens when a trustee of a deceased estate acquires a dwelling under the will of the deceased for occupation by an individual.

The words "trustee of a deceased estate" includes the trustee of a testamentary trust as per ATO Interpretive Decision ATO ID 2006/34, Income Tax, Capital Gains Tax: main residence exemption - testamentary trust - CGT event brought about by individual to whom ownership interest passed and Practice Statement Law Administration PS LA 2003/12: Capital gains tax treatment of the trustee of a testamentary trust.

The issue of when a trustee of a deceased estate acquires an ownership interest under the Will of a deceased person is considered in 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.

In its context in subsection 118-210(1) of the ITAA 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. A trustee acquires an ownership interest in a dwelling under the will of a deceased person for the purposes of subsection 118-210(1) of the ITAA 1997 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.

If a CGT event happens to the trustee's interest in the dwelling and they receive money for it, but the dwelling was the main residence of the individual from the time the trustee acquired the interest until the time of the event, then as per subsection 118-210(3) of the ITAA 1997 the trustee does not make a capital gain or loss from the CGT event.

Subsection 118-210(4) of the ITAA 1997 states that if the dwelling was used as the beneficiary's main residence for only part of the period that the trustee had an ownership interest, then a capital gain or capital loss is worked out using the formula provided in that subsection.

Application to your circumstances

The property was acquired by the trustee of the Testamentary trust and was the main residence of the three Beneficiaries of the Testamentary trust for approximately six years. Therefore, subsection 118-210(1) of the ITAA 1997 is satisfied as the ownership interest in the property was acquired by the trustee under the will for occupation by an individual.

The property was sold and the trustee received money for the sale.

As there was a period of vacancy between the time the beneficiaries moved out of the property, and the sale of the property, there will be a capital gain under subsection 118-210(4) of the ITAA 1997 calculated using the formula contained in that subsection. That formula is as follows:

where:

CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision.

non-main residence days is the number of days in that period when the *dwelling was not the individual's main residence.