Private ruling: Capital gains tax - deceased estate and disposal of main residence
Published: March 2012

Ruling: [Question 1: Is the capital gain or capital loss made on the disposal of the deceased's main residence disregarded? | Answer: No. | Question 2: Are you entitled to a partial main residence exemption upon disposal of the deceased's main residence? | Answer: Yes | This ruling applies for the following period | Year ended 30 June 2012 | The scheme commenced on 1 July 2011

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Since around 50 years ago the deceased resided in the house (the property) as their main residence. Around 16 years ago the deceased purchased the property and continued to reside in it as their main residence. Child A suffered from a medical condition. A few weeks prior to the deceased's date of death around eight years ago the deceased moved into a nursing home. Under the deceased's will child A had a right to occupy the property. Child A continued to reside in the property until his/her death. Under the deceased's will their children were the beneficiaries of their estate. After the death of the deceased their children undertook repairs and improvements to the property which included the installation of new floor coverings. In 2010 child A developed an illness and after a prolonged rehabilitation they passed away around 12 months ago. The property has been disposed of and the proceeds are being held by your solicitor. You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling: · The last will and testament of the deceased.

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 | Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Section 115-5 | Income Tax Assessment Act 1997 Section 115-10 | Income Tax Assessment Act 1997 Section 115-15 | Income Tax Assessment Act 1997 Section 115-20 | Income Tax Assessment Act 1997 Section 115-25 While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | The most common capital gains tax (CGT) event, CGT event A1 occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract - when the change of ownership occurs. | CGT event A1 occurred when you disposed of the deceased's main residence. | Deceased estate | If you acquire an asset, owned by a deceased person as their executor, you are taken to have acquired the asset on the day the person died. | On the disposal of a deceased's person's main residence, you may be exempt or partially exempt when a CGT event happens to it. There are a number of different exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of the CGT event can be disregarded either in full or in part. | A capital gain or capital loss is disregarded when a CGT event happens to a deceased person's main residence that you acquired after 20 September 1985 if: | · your ownership interest ends within two years of the deceased person's death | · from the deceased's death until your ownership interest ends the dwelling was the main residence of one or more of: | · the spouse of the deceased immediately before death | · 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 | Where a person who has the right to occupy the property as their main residence under the deceased's will any capital gain or capital loss arising from the disposal of the property will be disregarded if that person occupies the property for all of the executor's ownership period. | If that person does not occupy the property for all of the executor's ownership period, only a partial exemption will apply. | In your case, you are not entitled to the full main residence exemption as the property was not disposed of within two years of the deceased's death and child A did not reside in the property until your ownership interest in the property ended. Child A resided in the property until they passed away in around 12 months ago and your ownership did not end until after that date. | Therefore, only a partial main residence exemption can be obtained. The non-exempt portion of any capital gain or capital loss is calculated as follows: | Capital gain or capital loss X Non-main residence days | Total days | Capital gain or capital loss is the amount that you made from the disposal of the property. | Non-main residence days are the number of days that the property was not the main residence of child A. In your case, your non-main residence days will be from the day after child A's date of death until settlement date. | Total days are the number of days from the date the deceased acquired the property until settlement date. | Cost base | If you inherit a property the deceased had owned, there are special rules for calculating your cost base. These rules apply in calculating any capital gain or capital loss when a CGT event happens to the property. | The cost base of a CGT asset is made up of five elements: | · money or property given for the asset - the first element of the cost base and reduced cost base of a property - its acquisition cost - is its market value at the date of death where the property passes to you after 20 August 1996 (but not as a joint tenant) and it was the main residence of the deceased immediately before their death and it was not being used to produce income at that date | · incidental costs of acquiring the CGT asset or that relate to the CGT event | · costs of owning the asset | · capital costs to increase or preserve the value of your asset or to install or move it, and | · capital costs of preserving or defending your ownership of or rights to your asset. | You can use the discount method to calculate your capital gain as you are a trust, a CGT event happened to a CGT asset you owned, the CGT event happened after 21 September 1999, you have owned the property for longer than 12 months and you did not use the indexation method. | The discount percentage is 50% for individuals. | Please see the enclosed information which has been taken from the Guide to capital gains tax 2010-11 (NAT 41051-6.2010) on the cost base and how calculate your capital gain or capital loss. Further information is also available on our website - www.ato.gov.au.


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.