Private ruling: Capital gain tax - Deceased estate - Main residence exemption
Published: August 2017
Ruling period: Year ended 30 June 2016.
Date scheme commenced: 1 July 2015.

Ruling: Q1: Are you entitled to the two year exemption from capital gains tax (CGT) as you sold the dwelling within two years of the deceased's date of death, under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The deceased's late husband acquired a property about 75 years ago (the dwelling). About 30 years ago, the deceased inherited the dwelling when her husband passed away. The deceased passed away about two years ago. The dwelling was the deceased's main residence. The deceased moved out of the dwelling and lived with a grandchild about four years ago for health and wellbeing reasons. Soon after, the deceased moved into a nursing home and continued to live there until they passed away. The deceased made a choice to treat the dwelling as their main residence during the absence. During the deceased's absence, the dwelling was used to produce income for about two years prior to the date of death. At the time of the deceased's death, the dwelling was rented to an unrelated third party. The executor of the deceased's estate continued to earn income from the dwelling for the year and half from the date of death. The dwelling was sold and settled within two years from the deceased's date of death.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-145. | Income Tax Assessment Act 1997 subsection 118-190(3). | Income Tax Assessment Act 1997 subsection 118-190(4). | Income Tax Assessment Act 1997 section 118-195. Summary | You are entitled to the two year exemption from capital gains tax (CGT) as you sold the dwelling within two years of the deceased's date of death.

Reasons for decision: Summary: Absence Choice Generally, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to continue to treat a dwelling as your main residence for CGT purposes even though you no longer live in it. This is known as an absence choice. If the dwelling is not used to earn assessable income, and you do not own another main residence during the period of your absence, you can choose to treat the property as your main residence indefinitely. If the dwelling is used to earn assessable income you may make an absence choice for a period of up to six years. In your situation, the deceased moved out of the dwelling to live with their grandchild and then lived in a nursing home until they passed away. During this time, the deceased didn't own another dwelling that was considered to be their main residence. After the deceased moved out, the dwelling was rented for about two years prior to the deceased's date of death. Therefore, as the deceased did not have another main residence that they owned after they moved out of the dwelling, and it was used to produce assessable income a period of less than six years, the deceased was able to make an absence choice continue to treat the dwelling as their main residence from the time they moved out until they passed away in during the 2015 income year. Two year exemption from CGT When an ownership interest in a dwelling passes to you as a trustee of a deceased estate, you can disregard a capital gain or loss from selling the dwelling that the deceased person acquired on or after 20 September 1985 if: The dwelling was the deceased's main residence when they died; and The dwelling was not then being used to produce assessable income; and Your ownership interest in the dwelling ends within two years of the deceased person's death. If you make an absence choice you may ignore any use of the dwelling for producing assessable income. The deceased acquired the dwelling in after 20 September 1985. As the deceased made an absence choice the dwelling is considered to be their main residence up until the time they passed away. As an absence choice has been made, the time when the dwelling was used to produce assessable income is ignored. As you have disposed of the dwelling within two years from the day your ownership interest in the dwelling started you may disregard any capital gain or loss you made on the sale of the dwelling.