Private ruling: Capital gains tax
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Questions and answers | 1. Are you entitled to a partial main residence exemption on the capital gain you made on the sale of Property A? | Yes. | 2. Have you used the correct method in calculating the capital gain? | Yes.

Relevant facts and circumstances: The deceased acquired Property B prior to 20 September 1985 which was their residence up to an including the date of death. The deceased was living in the property with their partner. The deceased acquired a parcel of vacant land (Property A) under a contract executed after 20 September 1985. The deceased entered into a building contract for the construction of a dwelling on Property A which was completed some months later. It had been the intention of the deceased to sell the Property B residence and to move into the newly constructed Property A dwelling with their partner. However, circumstances precluded that from occurring before their death after construction was completed. The executors of the Estate disposed of Property B within 12 months of the date of death. Under the terms of the deceased's will, the deceased's partner was entitled to receive one-half of the income earned by the Estate during their lifetime and they also had the right to occupy any dwelling owned by the Estate or held by the executors pursuant to the management of the terms of the Estate. The deceased's partner took up residence in Property A a short time after the date of death and lived there for over 17 years. Subsequently, the partner, as a result of ill-health, executed a deed under which they gave up their rights of occupancy. The executors of the Estate entered into a contract to sell Property A. The partner passed away and the Estate is now in the process of being wound up. Property A was never used to produce income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 118-200 | Income Tax Assessment Act 1997 Subsection 118-130(2) | Income Tax Assessment Act 1997 Subsection 118-130(3)

Reasons for decision: Detailed Reasoning - Partial main residence exemption: Under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997), you meet the basic criteria to disregard a capital gain you make from the disposal of a dwelling or your ownership interest in it if you owned it as the trustee of a deceased estate and: • the deceased acquired the ownership interest on or after 20 September 1985, and • the dwelling was the deceased's main residence just before the deceased's death. In your case, the deceased was residing in Property B, purchased Property A, constructed a dwelling on Property A, did not take up residence in Property A and passed away while still living in Property B. Therefore, the exemption under section 118-195 of the ITAA 1997 is not available to you as Property A was not the deceased's main residence just before the deceased's death. Section 118-200 of the ITAA 1997 specifies that where section 118-195 does not apply, you may be entitled to a partial exemption from any capital gain where you owned a dwelling as the trustee of a deceased estate and the dwelling was the main residence of one or more of the following persons for part of your ownership period: • the spouse of the deceased immediately before death, or • an individual who had a right to occupy the dwelling under the deceased's will, or • an individual who is a beneficiary of the estate if they are disposing of the dwelling. In your case, the partner of the deceased had the right to occupy Property A under the deceased's will and did so for over 17 years. The property was then sold. Therefore, you are entitled to a partial main residence exemption under section 118-200 of the ITAA 1997 as section 118-195 does not apply to you and the dwelling was the main residence of an individual who had a right to occupy the dwelling under the deceased's will for part of your ownership period. | Detailed Reasoning - Calculation of partial main residence exemption: The partial main residence exemption is calculated with reference to the number of non-main residence days as compared to the total number of days in the ownership period. Subsection 118-200(2) of the ITAA 1997 specifies that where the deceased acquired the ownership interest on or after 20 September 1985, the number of 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, and • the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of one or more of: • the spouse of the deceased immediately before death, or • an individual who had a right to occupy the dwelling under the deceased's will, or • an individual who is a beneficiary of the estate if they are disposing of the dwelling. The total number of days in the ownership period is the number of days from the acquisition of the property by the deceased until your ownership interest ends. For land or a dwelling you acquire under a contract, you have an ownership interest in it from the time you obtain legal ownership of it, or if the contract gives you a right to occupy it an earlier time, the earlier time (subsection 118-130(2) of the ITAA 1997). Where you have a contract for the disposal of land or a dwelling, you have an ownership interest in it until your legal ownership ends (subsection 118-130(3) of the ITAA 1997). Based on the information you have provided, we note that you have calculated a partial capital gain in accordance with section 118-200 of the ITAA 1997.