Private ruling: Capital gains tax - deceased estate and main residence exemption
Date of advice: 24 July 2015
Published: July 2015
Ruling period: Year ended 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Will any capital gain or capital loss that you make from the sale of the property be disregarded as a result of the main residence exemption? | A1: Yes.

Relevant facts and circumstances: The deceased passed away some time in the relevant income year. The deceased resided at a property (the property) from the time it was purchased until their death. The property was purchased by the deceased and their spouse sometime prior to 20 September 1985 (pre capital gains tax (CGT)). The deceased became the sole owner of the property when their spouse passed away after 20 September 1985 (post CGT). The land on which the dwelling stands is less than two hectares. The dwelling stands in the centre of the block of land. Sometime in the relevant income year you entered into a contract for sale of part of the property. The contract for sale is for half of the property after subdivision into two halves. However, the contract is silent as to the existence of the dwelling. For the purpose of this private ruling, the dwelling will still be in existence at the time that settlement occurs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110, | Income Tax Assessment Act 1997 Section 118-130, | Income Tax Assessment Act 1997 Subsection 118-130(3) and | Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: The main residence exemption in relation to deceased estates is provided in section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997). This section provides that a capital gain or capital loss that you make on the disposal of a dwelling that you acquire as a trustee of a deceased estate is disregarded if: • the deceased acquired their interest in the dwelling before 20 September 1985 (pre CGT) and - from the deceased's date of death until the ownership interest ends the dwelling was 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 beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or - your ownership interest ends within two years of the deceased's death. Where the deceased acquired their interest in the dwelling on or after 20 September 1985 (post CGT) the above exemption conditions will need to be met however, in addition, the dwelling must also have been the deceased's main residence for all of their ownership period and must not have been used to produce income. Section 118-195 of the ITAA 1997 specifies that the main residence exemption applies to a dwelling. This exemption does not apply to vacant land. This section also makes reference to ownership interest. Section 118-130 of the ITAA 1997 provides the meaning of ownership interest in land or a dwelling. Subsection 118-130(3) of the ITAA 1997 provides that for land or a dwelling where you have a contract for the happening of the CGT event, you have an ownership interest in it until your legal ownership of it ends. Legal ownership of a dwelling or land is from the date of settlement of the contract at purchase until the date of settlement of the contract of sale. This means that your ownership interest does not end until settlement occurs and that entitlement to a main residence exemption will be contingent on the dwelling being in existence at that time. | Detailed Reasoning - Application to your circumstances: In your situation, the deceased held both a pre CGT interest and a post CGT interest in the property. The dwelling was their main residence until their death and the dwelling will still be in existence on the property at the time that settlement occurs. You have also disposed of the dwelling within two years of their death. Accordingly, you are entitled to a main residence exemption and any capital gain or capital loss that you make on the sale of the property is disregarded.