Private ruling: Capital gains tax - deceased estate and disposal of main residence
Published: September 2011
Ruling period: 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1:  | A2: 

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. Mid 1996, person A acquired a property (the property) which was their main residence In early 2005, person A died (the deceased). Probate was granted on mid 2005. A trustee company (the company) is acting as the trustee of the deceased estate. The administration of the estate has been delayed due to a dispute concerning the interpretation of the deceased's Will together with conflicts arising between the beneficiaries. Under a specific clause of the deceased's Will it states 'I give my estate to my Trustee upon trust as to my property to permit my child A to have the use and enjoyment thereof during their life for a period of a specified number of calendar months from the date of my death or for such shorter period as he shall elect …..'. Due to the delay in the administration of the deceased's estate, child A has resided in the property for a period exceeding the specified period as stipulated in the deceased's Will. Child A has resided in the property since the deceased's date of death and continues to reside in the property. Under a specified clause of the deceased's Will it states 'I direct my Trustee before proceeding to a sale of my property to first offer to the trustees for the time being of The Family Trust and in the event that the said Trust shall not be in existence as at my death then to my child A the right to purchase the same at a price to be ascertained by a valuer appointed by my Trustee …..'. In accordance with a Court Order dated late 2010, which includes the Terms of Compromise as amended by the Court Order, the company has offered the property to child A in accordance with the specified clause of the Will. Child A has signed the purchase contract and the property has been transferred to them. You have provided copies 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 deceased's Will, and · Court Orders - Terms of Compromise.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 118-200

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. The most common capital gains tax (CGT) event, CGT event A1, occurs when you dispose of a CGT asset and 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. | Detailed Reasoning - Deceased estate: If you acquire an asset owned by a deceased person as a trustee, you are taken to have acquired the asset on the day the person died. Generally, if a deceased person acquired their asset after 20 September 1985, the first element of your cost base and reduced cost base is taken to be the deceased person's cost base of the asset on the day the person died. However, where that asset was a dwelling that was the deceased's main residence at death it is acquired for market value. In administering and winding up a deceased estate, a trustee may need to dispose of some or all of the assets of the estate. Assets disposed of in this way are subject to the normal rules and any capital gain the trustee makes on the disposal is subject to CGT. CGT event A1 occurred when you disposed of the property to child A for the agreed valuation in accordance with the Terms of Compromise. However, 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 a CGT event can be disregarded, One such exemption relates to the disposal of a dwelling acquired by the trustee of a deceased estate. Section 118-195 of the Income Tax Assessment Act 1997 outlines the conditions under which the capital gain or capital loss can be disregarded in full. For a dwelling acquired after 20 September 1985 by the deceased, the following applies: · the property was the main residence of the deceased immediately before their death and was not being used to produce income, · the property is disposed of within two years of the death of the deceased, or · from the time of death until it's disposal, the property was the main residence of the deceased's spouse or an individual who had a right of occupancy under the Will. If the individual who had a right to occupy the property does not occupy the property for all of the trustee's ownership period only a partial exemption will apply. In your case, you are only entitled to a partial main residence exemption upon the property's transfer to child A. Under the deceased's Will child A only had a right to occupy the property for a specified period from the deceased's date of death and the property was not disposed of within two years of the deceased's date of death due to a family conflict, which was not resolved until late 2010. The Commissioner currently does not have the discretion to extend this two year period under any circumstances. You are taken to have acquired ownership of the property on the deceased's date of death for its market value. Your ownership period ended when the property was transferred to child A. 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 Note: For the purposes of calculating a capital gain or capital loss on a dwelling acquired by the deceased after 20 September 1985, that was their main residence prior to their death, we take into account how the deceased used the property. Capital Gain or Capital Loss is the amount that you make from the disposal of the property. Non main residence days are the number of days from when child A's right to occupy the property ceased until its disposal plus the number of days it was not the deceased's main residence. Total days are the number of days from settlement of the contract to acquire the dwelling until settlement on the disposal of the property.

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. | Subject: Capital gains tax - deceased estate and disposal of main residence: Question 1: Are you entitled to a main residence exemption upon disposal of the deceased's main residence? | Question 2: Are you entitled to a partial main residence exemption upon disposal of the deceased's main residence?