Private ruling: Capital gains tax - Deceased estate
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to disregard any capital gain or capital loss made on disposal of your interest in a dwelling which you inherited from your late Grandparent? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Subsection 128-15(2) | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: A capital gain or capital loss may be made if a capital gains tax (CGT) event happens to a CGT asset, such as a dwelling. The most common CGT event, an A1 event, happens when the asset is disposed of to another entity (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Main residence exemption where deceased acquired dwelling before 20 September 1985 Where the deceased acquired their interest in a dwelling before 20 September 1985, subsection 118-195(1) of the ITAA 1997 allows a capital gain or loss to be completely disregarded when you sell a deceased persons dwelling that you acquired as a beneficiary of that person's deceased estate provided that: 1. You dispose of your ownership interest within two years of the person's death; OR 2. From the deceased's death until you disposed of your ownership interest, the property was not used to produce assessable income and was the main residence of one or more of: A person who was the spouse of the deceased immediately before the deceased's death An individual who had a right to occupy the home 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 | Detailed Reasoning - Application to your facts: In your case you acquired your ownership interest in the property when your relative passed away. Applying the first test, you did not dispose of your ownership interest within two years of death. The second test has three parts which are relevant in determining the CGT consequences; a) The dwelling was not occupied by the spouse of your deceased relative immediately before the deceased's death, as it was occupied by another person. b) The dwelling was not occupied by someone who had a right to do so under your relative's will. Further, your relatives will did not stipulate that this person had a right to occupy the property. c) The dwelling has never been your main residence. As you do not satisfy the above conditions, section 118-195 of the ITAA 1997 does not apply to you and allow you to disregard the capital gain that you made on the disposal of the dwelling. We acknowledge that you decided not to sell the property following the death of your relative or use it to earn income as another person had a right of occupancy under the domestic relationship agreement and lived in the property for a period of time after your relative's death. The right to occupy needs to be specified in a will and as a result of this not occurring any capital gains tax liability can not be disregarded.

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. | Relevant facts: You inherited a dwelling following the death of your relative | You sold the property and made a capital gain. | The property has not been your main residence. | You have provided the following documents, which forms part of, and should be read in conjunction with this private ruling: | · Copy of domestic relationship agreement which provides that your relative was not in a defacto relationship; and | · Copy of last will and testament of your relative which states that under the terms of the will the estate is to be distributed in equal shares to you and another person or to the survivor of them.