Private ruling: Capital gains tax - deceased estate - main residence exemption
Date of advice: 5 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

Ruling: Q1: Are you entitled to full main residence exemption under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.


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.

Reasons for decision: 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. | Detailed Reasoning - 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 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 used to produce assessable income. 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 2016. | Detailed Reasoning - 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 199X. As the deceased made an absence choice the dwelling is considered to be their main residence up until the time they passed away in mid 2016. 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.

Relevant facts: The deceased jointly acquired a property (the dwelling). | The other party predeceased. | The deceased passed away in 2016 (the deceased). | The deceased moved into a nursing home in 2015 and resided there until passing away. | The deceased made a choice to treat the dwelling as their main residence during their absence. | During the deceased’s absence the dwelling was used to produce income. | The dwelling was sold in 2016 and settlement took place a short time later.