Private ruling: Deceased estate two-year discretion
Date of advice: 7 June 2023
Published: 31 July 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is any capital gain or loss you make due to the sale of the property disregarded? | A1: Yes. The deceased's spouse had a right to occupy the property under the deceased's will. Accordingly, the capital gain (or loss) that the trustee of the estate made from the CGT event that happened in relation to their ownership interest in the property is disregarded under subsection 118-195(1).

Relevant facts and circumstances: The deceased and their spouse owned a property as tenants in common. The deceased and the spouse each acquired a 50% ownership interest in the property after 20 September 1985. The deceased passed away in November 20XX. The deceased considered the property to be their main residence just before they passed away. The dwelling was not being used for the purpose of producing assessable income just before the deceased's death. The property was less than 2 hectares in size. Probate was granted to the trustee in February 20XX proving the validity of the deceased's will dated in August 20XX. The deceased's 50% legal ownership interest in the property therefore passed to the trustee. The will provided a life interest for the deceased's 50% ownership interest in the property to be used by the spouse. This allowed the spouse to reside in the property "...in so long as she makes the property her main residence" and, also, for as long as other conditions imposed by the will were complied with. The will provides that, upon cessation of the life interest, the property forms part of the residuary of the deceased's estate and can be distributed in accordance with the trustee's discretion to the remaining beneficiaries, who were the deceased's children. In August 20XX, the spouse provided written notice to the trustee of their desire to sell the property. The trustee agreed to this and commenced the sale process of the deceased's 50% ownership interest in the property. The spouse approached various selling agents, with the consent of the trustee, to discuss the sale of the property. A real estate agent was engaged in September 20XX to market the property and arrange for its auction, resulting in an auction date in October 20XX being set the same day. The spouse and the trustee prepared the property for advertising and sale: sworn valuations were obtained to determine the reserve price; minor maintenance was undertaken, including cleaning and the repair of a rotted section of a windowsill. The property did not sell at auction, however, it sold 7 days later, in October 20XX, with settlement occurring in February 20XX. The property was the main residence of the spouse, and the dwelling at which they resided, from the deceased's death under the right to reside provided by the will, until a week before the property settled, and they did not establish a new main residence in another dwelling during that time. The spouse did not have an ownership interest in any other property whilst having an ownership interest and right to reside in the property. The property had never been available for rent nor income-producing at any time throughout the spouse's, as well as the deceased's and trust's, period of ownership. The spouse received no consideration for relinquishing their right to reside in the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195