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Edited version of private advice
Authorisation Number: 4110079900674
Date of advice: 23 July 2020
Ruling
Subject: Capital gains tax and the main residence exemption
Question 1
Is there a CGT event when a main residence is passed to an organisation as a testamentary gift?
Answer
Yes.
Question 2
Does the main residence exemption apply to CGT event K3?
Answer
No.
Question 3
Is the transfer accepted as a philanthropic testamentary gift under 118-60 of the Income Tax Assessment Act (ITAA 1997)?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 20xx
The scheme commences on:
10 December 20xx
Relevant facts and circumstances
The deceased died on 10 December 20xx.
In the deceased's Will the deceased gifted the land, the buildings and fixtures of a property to a charitable organisation.
This organisation is a registered charity under the ACNC Act.
The organisation is not a Deductible Gift Recipient (DGR).
The property was at all times the main residence of the deceased from 14 May 20xx until his death.
Relevant legislative provisions
Section 30-15 of the Income Tax Assessment Act 1997
Section 30-95 of the Income Tax Assessment Act 1997
Section 104-5 of the Income Tax Assessment Act 1997
Section 104-215 of the Income Tax Assessment Act 1997
Section 118-60 of the Income Tax Assessment Act 1997
Section 118-195 of the Income Tax Assessment Act 1997
Reasons for decision
Question 1
A summary of CGT events is contained in section 104-5 of the ITAA 1997. CGT event K3 is provided under section 104-215 of the ITAA 1997. Pursuant to paragraph 104-215(1)(a) CGT event K3 happens if you die and a CGT asset you owned just before dying passes to a beneficiary in your estate who (when the asset passes) is an exempt entity. The deceased in his Will specified that his main residence is gifted to the charitable organisation. As the asset is gifted by the deceased to an exempt entity, it gives rise to CGT event K3.
The time of the event is just before the deceased died, which means that any resulting capital gain or capital loss is accounted for in the 'date of death return'. This is the final income tax return lodged on behalf of the deceased.
Question 2
Paragraph 118-195(1)(a) of the ITAA 1997 states:
"A capital gain or capital loss you make from aCGT event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trusteeof a deceased estate;"
One of the conditions for the main residence exemption to apply is that the asset must pass to an individual. As the asset passed to an exempt entity, the main residence exemption will not apply.
Question 3
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Subsection 118-60(1) of the ITAA 1997 states: |
"A capital gain or capital loss made from a testamentary gift of property that would have been deductible under section 30-15 if it had not been a testamentary gift is disregarded."
Section 30-15 of the ITAA 1997 provides a table of gifts or contributions that a taxpayer can deduct. The list relates to organisations that have DGR status. As the organisation does not have DGR status, the transfer of the property is not accepted as a deductible gift under section 118-60.