Private ruling: Capital gains tax and deceased estates
Date of advice: 12 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2011 | Year ended 30 June 2010
Date scheme commenced: 1 July 200X

Ruling: Q1: Is CGT payable when the deceased became the sole owner of the property on the death of their spouse? | A1: No. | Q2: Is CGT payable on the transfer and final sale of the property following the death of deceased? | A2: No. | Q3: Is there any other CGT liability for the property relating to the listed events? | A3: No.

Relevant facts and circumstances: A property was purchased by the deceased and their spouse as joint tenants in 198X. This property was used as their main residence. The property is a strata title unit of less than two hectares. There were no significant improvements in the ownership period. The property was never used to produce income. The deceased moved to an aged care hostel in 200X. Both tenants continued to nominate the property as their main residence. The deceased's spouse died in 200X and as the surviving joint tenant; the deceased became the sole owner. The deceased continued to treat the property as their main residence. The deceased died in 200X. The will appointed an Executor and Trustee. The will instructed that the property be sold with the proceeds distributed to the beneficiaries. The property was transferred to the legal representative in 20XX and sold in 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3), | Income Tax Assessment Act 1997 subsection 118-145(3), | Income Tax Assessment Act 1997 section 118-195, | Income Tax Assessment Act 1997 section 118-197 and | Income Tax Assessment Act 1997 subsection 128-15(3).

Reasons for decision: Summary: Section 118-197 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a surviving tenant is treated the same as if the dwelling passed to you as a beneficiary of a deceased estate. A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a CGT event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: • who occupied the dwelling after the date of the deceased's death, or • whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: • the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) • 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. Application to your circumstances In your case, when the deceased's spouse died, the property passed to the deceased as the surviving tenant. The property was the deceased's main residence prior to death and was not used to produce assessable income. The property was occupied by a relevant individual for the purposes of section 118-195 of the ITAA 1997 and subsequently the transfer of the remainder of the property to the deceased in 200X is fully exempt from CGT. Subsection 128-15(3) of the ITAA 1997 provided that any capital gain or loss a legal representative makes if an asset is passed to the beneficiary of an estate is disregarded. Subsection 118-145(3) of the ITAA 1997 provides that if a property was not used for the purpose of producing assessable income you can choose to treat it as your main residence indefinitely. In your case though the deceased was absent from their residence for more than six years; the property was never used to produce assessable income and can continue to be treated as their main residence. A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a CGT event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: • who occupied the dwelling after the date of the deceased's death, or • whether the dwelling was disposed of within two years of the date of the deceased's death. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. Application to your circumstances Subsection 128-15(3) of the ITAA 1997 disregards any capital gain or loss to the legal representative. The property settled within the two year period set out by section 118-195 of the ITAA 1997 and subsequently any capital gain or loss is disregarded.