Private ruling: Capital gains tax
Published: December 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Is the inherited property exempt from capital gains tax? | No.

Relevant facts and circumstances: The deceased died in a number of years ago. Probate was granted recently. You inherited a home unit from the deceased under their will. The deceased had a disabled child who lived in the home unit until they went into a nursing home. It is your belief that the deceased's wishes were that their child was to live in the home unit for their life time. The deceased did not make provision for their child to live in the home unit under their will. You carried out the deceased's verbal wishes and allowed their child to live in the home unit until they moved into the nursing home in 2012. Your grandchild has been living in the home unit since the deceased's child entered the nursing home.

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

Reasons for decision: Summary: A person makes a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). Generally, assets a person inherits through a deceased estate are acquired on the date of death (section 128-15 of the ITAA 1997). The first element of the cost base of an interest in a dwelling that was the main residence of the deceased just before their death, the dwelling was not used to produce assessable income and the land does not exceed 2 hectares is the market value of the dwelling on the deceased's date of death (section 128-15(4) of the ITAA 1997). Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person acquired before 20 September 1985 if: • The trustees ownership interest in the dwelling ends within two years of the deceased persons death, or • from the deceased's death until the trustees ownership interest ends (the trustee's ownership period), the dwelling was not used to produce income and it was also the main residence of one or more of the following persons: • the spouse of the deceased immediately before death • an individual who had a right to occupy the dwelling under the deceased's will, or • an individual who brought about the CGT event and the ownership interest in the dwelling had passed to that individual as beneficiary. The ownership interest of a beneficiary or trustee commences on the date of death of the deceased (section 128-15 of the ITAA 1997) and ends on the disposal of the dwelling. A full main residence exemption will only be available if the dwelling was the main residence of one of the specified individuals during the trustee's ownership period for the entire period. The deceased's child did not have the right to occupy the home unit under the deceased's will. The arrangement that resulted in the deceased's child living in the home unit was a decision made by you as beneficiary of the home unit. You believe that it was the deceased's wish to allow their child the right to live in the home unit while they were alive. This was a verbal conversation and did not form part of the deceased's will. Therefore any capital gain will not be disregarded under section 118-195 of the ITAA 1997 as the property was not sold in the 2 year time period and the deceased's child did not have the right to occupy the property under the terms of the will.