Private ruling: Capital gains tax and main residence exemption
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: 1. Is the capital gain or loss on the disposal of your portion of 2/3rds of a dwelling acquired from your mother's estate disregarded? No 2. Is there a capital gain or loss on the disposal of 1/3rd of a dwelling acquired from your mother's sister's estate disregarded? Yes

Relevant facts and circumstances: Person X and Person Y purchased a property They owned the property as tenants in common and Person X owned a share of the property. Person X occupied the property as their main residence. Person X passed away in 2008. Person X's will created a life tenancy for Person Y who co-owned the property. Person Y occupied the property as their main residence until they moved to a nursing home. Person Y elected for the property to be their main residence after they moved to the nursing home. Person Y passed away in 2010. You are the sole beneficiary of Person Y's estate. After probate was reached, the property was placed on the market for sale. Whilst the property was on the market for sale, it was being rented out. The property was sold in 2011.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10. , | Income Tax Assessment Act 1997 Section 118-195. , | Income Tax Assessment Act 1997 Section 118-200. , and | Income Tax Assessment Act 1997 Section 128-15.

Reasons for decision: Summary: The disposal of a CGT asset constitutes a CGT event A1 as outlined in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Your capital gain or capital loss is calculated by subtracting the cost base of the dwelling from the capital proceeds received from its sale. CGT asset is any kind of property and includes part of, or an interest in any kind of property. Therefore in your case, there are two CGT assets. As a general rule, an individual can disregard any capital gain or capital loss realised on the disposal of a dwelling that was their main residence (section 118-110 of the ITAA 1997). To get the full main residence exemption: o the dwelling must have been your home for the whole period you owned it; o the dwelling must not have been used to produce assessable income; o any land on which the dwelling is situated must be two hectares or less. Where an individual moves out of their main residence they can elect to continue to treat the property as their main residence for an indefinite period where the property is not used to produce assessable income and for 6 years where the property is used to produce assessable income during the absence. Person X has elected to treat the property as her main residence after she moved out. Therefore it continued to be their main residence. | Detailed Reasoning - Property acquired from a deceased estate: Where a CGT asset devolves to an executor or passes to a beneficiary in an estate the executor or beneficiary is taken to have acquired the asset on the day the deceased died. An asset passes to a beneficiary if the beneficiary becomes the owner of the asset under a will, or a will as varied by a court. As there are two assets in your situation there are two acquisition dates. You your portion of the Person X's property in 2008, and you acquired the person Y's in 2010. | Detailed Reasoning - Cost base of CGT asset acquired from a deceased estate: Where the CGT asset is a dwelling that was the deceased's main residence just before they died, and was not then being used for the purpose of producing assessable income, the executor or beneficiary is taken to have acquired the dwelling (or interest in it) for the market value of the dwelling on the day the deceased died. As the dwelling was your Person X and Person Y's main residence just before they died, and was not being used to produce assessable income; you are taken to have acquired your portion of Person X's in 2008 and Person Y's in 2010. Full exemption for beneficiaries of deceased estates There is a full CGT exemption on an inherited dwelling for any capital gain or loss that is made from a relevant CGT event happening if: (1) the trustee's or beneficiary's ownership interest ends within two years of the deceased's death, or (2) from the time of the deceased's death until the trustee's or beneficiary's ownership interest ends, the dwelling was the main residence of one or more of the following: · the spouse of the deceased immediately before death (except a spouse living permanently and separately apart from the deceased) · an individual who had a right to occupy the dwelling under the deceased's will, or · if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual. The interest in the CGT asset from Person Y was disposed within two years of the deceased's death meets the conditions for a full CGT exemption. The interest in the CGT asset from Person X is considered to have been occupied by an individual who had a right to occupy the dwelling under Person X's will. The interest acquired from Person X carries a CGT exemption up to the time that the person who had a right to occupy the property vacated it (the passing of Person Y in 2010).

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