Edited version of private advice

Authorisation Number: 1051979216697

Date of advice: 5 May 2022

Ruling

Subject: Deceased estate

Question

Did the trustees acquire the dwelling (dwelling A) under the will of the deceased for the purposes of subsection 118-210(1) of the Income Tax Assessment Act 1997?

Answer

Yes. Having considered your circumstances and the relevant factors, the Commissioner agrees the dwelling was acquired under the will of the deceased and in accordance with Taxation Determination TD 1999/74.

Question

If person A makes an election under section 118-145 of the Income Tax Assessment Act 1997 in respect of their life interest in the property, does that have the effect that in applying the formula in subsection 118-210(3) of the Income Tax Assessment Act 1997 to a gain from the sale of property A, the trustee would have 'nil' non-main residence days?

Answer

Yes. Section 118-145 of the Income Tax Assessment Act 1997 provides that a taxpayer can make a choice to continue to treat a dwelling as their main residence even though they no longer live in it. Where the dwelling is used to produce income, the choice is effective for a period of up to six years. Where the individual has passed away, this choice can be made by the executor of their estate. However, where the individual to who the main residence exemption applies passes away, the exemption period ceases.

Therefore, as the beneficiary did have the right to occupy the dwelling, and they continued to treat the property as their main residence after they moved out, the capital gain made on disposal of the property can be disregarded in full.

This ruling applies for the following period

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts

The deceased passed away prior to 20 September 1985 (the deceased)

Probate was granted a short time later.

The will of the deceased created an equitable life interest in a property which had been the deceased's main residence for person A. The remainder interest is held on trust for the benefit of the deceased's three children or if any of them do not survive person A, their share will benefit their children.

The current trustees of the trust are person B and person C.

Person A continued to reside in the deceased's former main residence for a number of years. At this time the property was in a dilapidated condition and there were no funds available to undertake any repair work. Due to safety concerns for person A it was determined by the trustees to acquire another property for person A to reside in.

The replacement property was acquired for $XX and it is estimated to be valued recently at between $YY to $ZZ.

Person A continued to reside in property A until recently when they moved into fulltime residential care.

The trustees will sell property A within the period covered by this ruling.

Person A will make an absence choice to continue to treat property A as their main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-130

Income Tax Assessment Act 1997 section 118-195

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

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