Private ruling: Capital gains tax - deceased estate - disposal of main residence
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the capital gain or capital loss made on the disposal of the deceased's main residence disregarded? | A1: Yes.

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. Prior to 20 September 1985, your parents jointly purchased a property. Your parents moved into and established the property as their main residence at the end of the following year. Your parent (parent A) died approximately three years ago. Your parent A's interest in the property was transferred into your other parent (parent B) name. Approximately four years ago your parent B moved in with you due to their medical condition. Your parent B continued to reside with you until two months prior to their death when they moved into a nursing home due to their ill health. You, your spouse and your parent B slept at the property on a regular specified basis. The property has not been used for income producing purposes since your parent B's death. Due to the use of the absence choice the property was your parent B's main residence for their entire ownership period. You had the property valued by a real estate agent approximately two years ago. Early this year you disposed of the property.

Relevant legislative provisions: Income Tax Assessment Act Section 104-10 | Income Tax Assessment Act Section 109-55 | Income Tax Assessment Act Section 118-145 | Income Tax Assessment Act Section 118-195 | Income Tax Assessment Act Section 128-15 | Income Tax Assessment Act Section 128-50

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. Generally, assets inherited through a deceased estate are acquired on the deceased date of death. In your case, you are taken to have acquired your interests in the property on your parent B's date of death. The most common gains tax (CGT) event, CGT event A1 which 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. In your situation, a CGT event A1 occurred upon the disposal of the property. | Detailed Reasoning - Application of CGT - deceased estate: Your parents purchased the property prior to 20 September 1985 (pre-CGT) as joint tenants. When a property is acquired as joint tenant each individual is taken to have an equal interest. Upon the death of your parent A your parent B is taken to have acquired your parent A's interest in the property for its market value of parent A's date of death. Therefore, your parent B acquired two separate interests in the property, the first interest was acquired prior to 20 September 1985, and the second interest was acquired after 20 September 1985 (post CGT) upon your parent B's death. Upon the death of your parent B you are also taken to have acquired two interests in the property as a beneficiary of your parent B's estate. There are a number of conditions that must be met before a capital gain or capital loss can be disregarded when a CGT event happens if you inherit a deceased's main residence. Where a dwelling is the deceased main residence and it is disposed of within two years of the deceased's date of death any capital gain or capital loss made on its disposal is disregarded. Your parent B did not reside at the property from a specified date due to their illness. Your parent B resided with you from a specified date and then a couple of months prior to their death in a nursing home. Under the absence provisions an individual can choose to continue to treat a dwelling as their main residence after it is no longer their main residence. You can choose to treat the dwelling as a main residence indefinitely if the dwelling is not used for an income producing purposes. As a beneficiary of your parent B's estate you can make this choice. You made the choice to continue to treat the property as their main residence for their entire ownership period. Therefore, as you disposed of your parent B's main residence within two years of their death any capital gain or capital made on the disposal of the property is disregarded.