Private ruling: CGT and Deceased Estate, ownership of dwelling
Date of advice: 27 October 2015
Published: October 2015
Ruling period: 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017 | 1 July 2017 to 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Did you have an ownership interest in the relevant dwelling, pre-dating the death of the deceased? | A1: Yes | Q2: Are you entitled to a full main residence exemption for the relevant dwelling and the surrounding number of hectares of land? | A2: Yes

Relevant facts and circumstances: The deceased purchased the property before 20 September 1985. The deceased died some ten years ago. There are less than five dwellings on the land. One was the deceased's main residence. You built a dwelling on land owned by the deceased with your own money, after 19 September 1985, and it was your main residence. Your dwelling is built on a number of acres of adjacent land that has not been used for business purposes. Subdivision of the land was not permitted at the time the house was built. The will of the deceased left their children as tenants in common of the property, once you were reimbursed for the current value of the building on the property, or alternatively, if subdivision of the land was allowed, you were to take the dwelling and the number of acres of adjacent land. The following document is to be read with and forms part of the description of the scheme for the purpose of this ruling: • The will of the deceased Assumptions You will subdivide the land and receive a number of acres in your own name rather than inheriting XX% of the total land as tenants in common. You will sell your house within the time period indicated. You will sell the number of hectares of land adjacent to the house to the same buyer at the same time as you sell the house.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subdivision 108 | Income Tax Assessment Act 1997 Subdivision 118-B | Income Tax Assessment Act 1997 Division 128.

Reasons for decision: Summary: Summary You owned a dwelling from the time it was built. The ownership of the house was separate from your ownership interest in the land, which you received at the time of the deceased's death. Detailed reasoning A general principle of property law is that the owner of land also owns the fixtures attached to that land (including buildings). However, there is some scope for the owner of land to allow another person to construct a building on land and for that other person to continue to own the building. You built your house on the deceased's land with the understanding that you had a right to live in it and that you would receive legal title of the house and land as a beneficiary of his estate. The deceased was prevented from subdividing and transferring the five acres to you during his lifetime due to Council restrictions on subdivisions. There was a clear acknowledgement in the deceased's will that you had invested your own money in the house and were entitled to be recompensed for replacement value if you were unable to subdivide the land the house was on. This is also a clear acknowledgement that the deceased did not intend to take ownership of your house even though he owned the land on which it was situated. Given the above facts, the Commissioner accepts that you were the owner of the house even though it was built on land owned by the deceased. Summary As the dwelling is your main residence, you are entitled to a full main residence exemption from capital gains tax. You are also entitled to a full exemption for the hectares of adjacent land. Detailed reasoning You have lived in the dwelling continuously since it was built and you do not have any other residence. It is your main residence at common law and for CGT purposes. For the reasons mentioned above, you have owned the house from the time it was built. You disregard any capital gain or loss from an ownership interest that you have in a dwelling where it has been your main residence for the whole of your ownership period. You also entitled to apply the main residence exemption to a dwelling's adjacent land, under certain circumstances. This is true even when, as in your case, the land has been acquired separately. Provided the land has been used with the house for private or domestic purposes and is sold at the same time as the house, to the same buyer, you will be able to disregard any capital gain. Where there is more than two hectares of adjacent land, you are permitted to select which two hectares to include. Land that is subdivided from the dwelling and sold separately to it, or land in excess of two hectares will not qualify for a CGT exemption, and will have a cost base of its market value at the time of the deceased's death.