Private ruling: Deceased estate - main residence exemption
Date of advice: 21 October 2015
Published: October 2015
Ruling period: The year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the capital gain made on the disposal of the property be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling prior to 20 September 1985. The deceased lived in the property with their spouse and it was their main residence until they passed away. The property has never been used for an income producing purpose. The deceased left a Will. Probate was granted and the property passed to the trustee upon trust. In accordance with the terms of the last Will and Testament, the deceased's spouse was granted the right to occupy the property as a life tenant. The deceased's spouse continued to live at the property as their main residence. The spouse requested in writing that the trustee sell the property, which was in accordance with the terms of the Will. The property was their main residence up until the date of the property settlement.

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

Reasons for decision: Summary: Section 118-195 of the ITAA 1997 allows a trustee of a deceased estate to disregard any capital gain or capital loss made from the disposal of the deceased's main residence if: • the property was acquired by the deceased before 20 September 1985, and • your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances) or • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: • the spouse of the deceased immediately before the death or • 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. In this case, the deceased acquired the property prior to 20 September 1985. Following the deceased's death the property passed to the trustee of the deceased's estate. In accordance with the terms of the last Will and Testament, the deceased's spouse was granted the right to occupy the main residence as a life tenant. After living in the property for a period, the spouse requested in writing that the property be sold, which was in accordance with the terms of the Will. The property was their main residence up until the date of the property settlement. As the conditions in section 118-195 of the ITAA 1997 has been satisfied, the estate can disregard the capital gain made on the disposal of the property.