Private ruling: CGT - inherited main residence
Date of advice: 1 September 2016
Published: October 2016
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the sale of an inherited main residence be subject to capital gains tax (CGT) where the property is sold within 2 years of the deceased passing away? | A1: No | Q2: If the sale of the inherited main residence is subject to CGT, is the cost base the value of the property at the time the deceased person passed away? | A2: Yes

Relevant facts and circumstances: The deceased person passed away in the relevant financial year. You inherited the main residence of the deceased person. The property was purchased after 21 September 1985. The deceased person did not have a spouse at the time of their passing away, and no other person had a right to occupy the property under the terms of the will.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: Under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) you can disregard any capital gain or capital loss that you make from the disposal of a dwelling that passed to you as the trustee or beneficiary of a deceased estate provided certain conditions are satisfied. Section 118-195 of the ITAA 1997 allows you, as the beneficiary, to disregard any capital gain or capital loss in relation to the former main residence of the deceased person if either of the following applied: (1) you disposed of your ownership interest within two years of the deceased's death, or within a longer period as allowed by the Commissioner; or (2) if you did not dispose of your ownership interest within two years, the dwelling was, from the deceased's death until your ownership interest ended, the main residence of one or more of: (a) The deceased's spouse at the time of their death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) you, as a beneficiary of the estate If one of these conditions is not satisfied, then the property will be subject to CGT. The table contained in Subsection 128-15(4) of the ITAA 1997 sets out the modifications to the cost base of a CGT asset in the hands of a legal personal representative or beneficiary. Item 3, of the table states that where a dwelling was the main residence of the deceased, and was not being used to produce assessable income, the first element of the cost base is the market value of the dwelling on the date of death of the deceased person. Where you are not entitled to a full exemption from CGT under section 118-195 of the ITAA 1997, you will only be entitled to a partial exemption. You calculate your capital gain or capital loss using the formula: CG or CL amount x non-main residence days Total ownership days where: CG or CL amount is the capital gain or capital loss you would have made from the CGT event apart from this Subdivision. non-main residence days is the sum of the number of days in the deceased's ownership period when the dwelling was not the deceased's main residence plus the number of days in the period from the death until your ownership interest ends when the dwelling was not your main residence total days is the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends.