Private ruling: CGT - deceased estate, disposal of property
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a full main residence exemption? | A1: No | Q2: Are you entitled to a partial main residence exemption? | A2: Yes | Q3: Is the cost base for calculation of a capital gain or capital loss the deceased's cost base on the day they died? | A3: Yes

Relevant facts and circumstances: The deceased purchased the property as tenants in common with another individual in year ended 30 June 19XX. A second unit was built on the property and title to the new unit (the property) was transferred solely to the deceased in year ended 30 June 19YY. The property was the deceased's principal residence until the deceased moved into care in year ended 30 June 200Z. The property was treated as the deceased's principal residence until year ended 30 June 200V, from which time it was rented. The deceased died in the relevant year. The property was rented until the subsequent year. The property was sold in the subsequent year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 section 118-200 | Income Tax Assessment Act 1997 Division 115

Reasons for decision: Summary: Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) applies generally to include a capital gain or capital loss in your assessable income. | Detailed Reasoning - Main Residence Exemption: In your situation, a capital gain or capital loss may be disregarded under subsection 118-195 of the ITAA 1997 in certain circumstances. This provision provides that any capital gain or capital loss you make from the sale of a residence that passes to you as a beneficiary of a deceased estate, where the deceased acquired the property on or after 20 September 1985, is disregarded if: · the sale happens within two years of the deceased's death · the residence was the deceased's main residence just before they died and was not then being used to produce assessable income. In your circumstances, the deceased treated the property as their main residence until year ended 30 June 200V, from which time it was rented, prior to being sold in the subsequent year. Section 118-195 does not apply in your case as it was not the deceased's main residence just before their death because it was used to produce assessable income. However, in this instance as section 118-195 does not apply, you are eligible for a partial exemption under section 118-200 of the ITAA 1997. The formula for calculating this partial exemption is located under this provision. We note that if the beneficiaries are not presently entitled to the funds, the trustee would need to include the discounted capital gain in the deceased estate's tax return. | Detailed Reasoning - Cost base: There are modifications to the general cost base rules under section 128-15 of the ITAA 1997, which apply when a property passes to you as executor of a deceased estate. In this instance, the cost base of an asset which was acquired after 20 September 1985 and which was not the deceased's main residence just before the deceased's death is the deceased's cost base on the day they died (Item 1 of the table under section 128-15(4) of the ITAA 1997).