Private ruling: Deceased estates and capital gains tax
Date of advice: 17 January 2019
Published: May 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will any capital gain on the sale of the dwelling be disregarded? | A1: Yes. Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the dwelling if: ● the dwelling was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased’s main residence just before the deceased’s death and was not then being used for the purpose of producing assessable income, and ● your ownership interest ends within 2 years of the deceased’s death. We consider the dwelling ‘passed’ to Person B under section 128-20 of the ITAA 1997. The dwelling was sold within two years of Person B’s death, was acquired after 20 September 1985, was the deceased’s main residence at the time of their death and was not used to produce assessable income. Therefore the main residence exemption will apply to disregard the capital gain made upon the disposal of the dwelling.

Relevant facts and circumstances: Person A acquired sole ownership of the dwelling before 20 September 1985 and owned no other dwelling. It was their main residence from the date of acquisition. Person B resided in the dwelling with Person A and did not own a dwelling. Person A died and left a will. Probate was granted to the deceased. Person B was the sole beneficiary of the estate and the executor. Person B continued to reside in the dwelling as their main residence after Person A died. The dwelling was never used to produce income and no capital improvements were made. Person B failed to legally transfer the dwelling into their name in their role as executor. Person B died intestate. Letters of Administration for their estate was granted to a Trustee. The Trustee was granted probate for Person B. The dwelling was sold and settlement occurred within two years of Person B’s death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 128 | Income Tax Assessment Act 1997 Section 128-10 | Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Section 128-20 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 118-145