Private ruling: CGT - deceased estate - right to occupy
Date of advice: 30 January 2017
Published: July 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Can you disregard any capital gain or loss that arises from the disposal of the property under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: The deceased died in April 19XX. Probate was granted by the Relevant Court of the relevant state in July 19XX to the sole executor and trustee, A. The only remaining asset in deceased's estate is a house (the property). The property was acquired by the deceased prior to 20 September 1985. Under the deceased's Will, the deceased's family members were provided the right to occupy the property. The property was to be held on trust by A in his capacity as executor and trustee of the deceased estate until the last surviving family member becomes known and then the property would pass to that person absolutely. A died in 20XX. At the time of A's death A held the property as trustee. The legal personal representative of A's estate appointed B and C as trustees in respect of the deceased's estate. X and Y are the only surviving beneficiaries of the deceased's estate. Y currently occupies the property as their main residence and has done so for their entire life. As required under the deceased's will, Y, as the occupant of the property, paid the Council and Water rates and charges as they came due as well as paying relevant property insurance. There have been no capital improvements to the property after 20 September 1985. X and Y have agreed to terminate their right to occupy and direct the trustee to sell the property and distribute the proceeds to them as beneficiaries of the deceased estate. The intention is to place the property on the market for sale by auction in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual In your case, B and C own the property in their capacity as trustees of the deceased estate. The deceased acquired the property before 20 September 1985 and the dwelling is, from the deceased's death until its disposal, the main residence of an individual, Y, who had a right to occupy the dwelling under the deceased's will. As a result, you satisfy the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.