Private ruling: Capital gains tax - deceased estate - disposal
Published: July 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the capital gains tax disregarded on the sale of property inherited through a deceased estate? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 115-15 | Income Tax Assessment Act 1997 Section 115-25 | Income Tax Assessment Act 1997 Section 118-200 | Income Tax Assessment Act 1997 Section 118-195.

Reasons for decision: Summary: The most common capital gains tax (CGT) event is a 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 change of ownership occurs. 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, either in full or in part. | Detailed Reasoning - Full Exemption: One such exemption relates to the disposal of a dwelling by the beneficiary 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. Where a dwelling was originally acquired by the deceased before 20 September 1985 (pre-CGT) and their spouse occupies the dwelling, any capital gains or capital losses arising from the disposal of the dwelling will be disregarded if the spouse occupied the dwelling as their main residence for all of the beneficiary's ownership period. As the deceased's spouse has not occupied the dwelling for all of your ownership period, only a partial exemption can apply. | Detailed Reasoning - Partial Exemption: You get only a partial exemption (or no exemption) if: · your ownership interest in a dwelling devolved to you as executor of a deceased estate, and · the dwelling was the main residence of the spouse of the deceased person for part only of your ownership period. 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 Capital Gain or Capital Loss is the amount that you made from the disposal of the dwelling before claiming any main residence exemption. Non- main residence days are the number of days that the dwelling was not the main residence of the spouse of the deceased. Total days are the number of days from the death of the deceased until settlement of the disposal of the property. | Detailed Reasoning - Absence choice: The spouse of a deceased person can choose to continue to treat a dwelling as their main residence after they move out of it for the purpose of determining whether a beneficiary is entitled to claim a full or partial main residence exemption. | Detailed Reasoning - Notes for your information: The acquisition date of a property for the beneficiary is the date of death of the deceased. As the deceased acquired the property before 20 September 1985, you are considered to have acquired it at the market value of the property on the date of death. As you have owned the dwelling for more than 12 months, and you acquired the dwelling prior to 19 September 1999, you can choose either the indexation or the CGT discount method to calculate your net capital gain.

Relevant facts: The deceased passed away after 20 September 1985 | The deceased left a will which named their children as beneficiaries. | The deceased left a unit which was purchased prior to 20 September 1985 | The unit was transferred into the beneficiaries' names. | The deceased left a codicil to their will which provided that the deceased's spouse has a right to reside in the property during their lifetime. | The deceased's spouse resided in the unit for a period of time until it was relinquished as the deceased's spouse moved into a nursing home. | The deceased's spouse is not making an absence choice for the period from vacating the unit until settlement for the sale of the unit. | The sale of the unit was completed and has resulted in a capital gain.