Private ruling: Capital Gains Tax
Date of advice: 10 December 2018
Published: March 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Are you entitled to a full main residence exemption on the property? | A1: No | Q2: Are you entitled to a partial main residence exemption on the property? | A2: Yes

Relevant facts and circumstances: The deceased passed away on XX XXXX 20XX. The property was acquired by the deceased in 19XX. The deceased lived in the property as their main residence for the whole of their ownership period. The settlement date for the property was on XX XXXX 20XX. Two of the deceased’s children and beneficiaries lived with the deceased up until their death. The two children who lived with the deceased had the right to live in the property after their death for as long as they needed to in accordance with the deceased’s will. One of the children and beneficiary lived in the property as their main residence until 20XX, the other child and beneficiary lived in the property until 20XX as their main residence. A child of one of the beneficiaries lived in the property from 20XX until it was sold on XX XXXX 20XX, they did not have a right to live in the property under the will. The property was less than 2 hectares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Subsection 118-195(1) | Income Tax Assessment Act 1997 Section 118-200

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that capital gains tax (CGT) is incurred when a CGT event takes place and either a capital gain or a capital loss results. Any capital gain is added to any other assessable income for the relevant year and is then taxed at the appropriate marginal tax rate. A capital loss can be offset against other current year capital gains or carried forward indefinitely to be offset against future year capital gains. The most common CGT event is known as CGT event A1 and generally occurs whenever there is a change in ownership of a CGT asset from one party to another. Subsection 118-195(1) of the ITAA 1997 provides that a trustee of a deceased estate disregards a capital gain or loss from a dwelling that a deceased person acquired before 20 September 1985 if: (1) the trustee’s ownership interest ends within 2 years of the deceased’s death, or (2) from the deceased’s death until the trustee’s ownership interest ends, the dwelling was the main residence of one or more of the following persons: (a) the spouse of the deceased immediately before death; or (b) an individual who had the right to occupy the dwelling under the deceased’s will; or (c) an individual who brought about a CGT event where the ownership interest in the dwelling passed to the same individual as a beneficiary. You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, you did not sell the property within two years of the deceased’s passing. Therefore, a full main residence exemption will only be available after this time if the dwelling is the main residence of one of the specified individuals during the trustee’s ownership period. ATO ID 2004/882 Capital Gains Tax: main residence exemption – deceased estate – right to occupy dwelling for limited period, states that for the purposes of determining whether a full exemption is available to a trustee under section 118-195 of the ITAA 1997, an individual only has a right to occupy a dwelling under the deceased’s will for the period specified in the will. An exemption is not available for any part of the trustee’s ownership period that a person who had a right to occupancy continues to occupy the dwelling in some other manner (for example, as a licensee or tenant). In your situation, the deceased provided a right to occupy the property for as long as needed to two of the beneficiaries. One of the beneficiaries lived in the property as their main residence up until 20XX and the other beneficiary lived in the property up until 20XX as their main residence. From 20XX to XX XXXX 20XX a child of one of the beneficiaries lived in the property and they were not given a right to occupy the property under the will. A full main residence exemption is not available. You are eligible for a partial exemption under section 118-200 of the ITAA 1997. You can only have the main residence exemption up until 20XX when the beneficiary who was eligible to occupy the property under the will moved out. For the period the child of one of the beneficiaries lived in the property from 20XX to XX XXXX 20XX CGT will be payable. You calculate your capital gain or capital loss using the formula: Capital gain or capital loss amount × Non-main residence days Total days Capital gain or capital loss is the amount that you made from the disposal of the dwelling (before applying any main residence exemption). Non-main residence days is the sum of: ● the number of days in the period from the death of the deceased until your ownership interest ends when the dwelling was not the main residence of one of the following: ○ a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased) ○ an individual who had a right to occupy the dwelling under the deceased’s will, or ○ you, as a beneficiary, if you disposed of the dwelling as a beneficiary. Total days is: ● the number of days from the deceased’s death until you disposed of your ownership interest. You would then be able to use the discount method to calculate your capital gain.