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

Ruling: Question and answer | Are you entitled to disregard any capital gain or capital loss made from the sale of Property X? | Yes.

Relevant facts and circumstances: The deceased died in 19XX. Under the terms of the will, the deceased's spouse, was granted the use, occupation and enjoyment of the main residence owned by the deceased, and at the deceased's spouse's request, the Trustee could sell the residence and use the proceeds of the sale to purchase or build another residence to be held upon the same trust, including allowing the sale of the new residence at the deceased's spouse's request and again to use the proceeds of the sale to purchase or build another residence. The main residence at the time of the deceased's death was Property Y. The deceased's spouse lived in the property until it was sold. A new residence, Property X, was purchased in accordance with the terms of will. In the 2013-14 income year, Property X was sold. Property Z was then purchased using the proceeds from the sale of Property X. The remaining funds were distributed to the deceased's spouse and other beneficiaries. The deceased's spouse lived in Property X for the entire ownership period.

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

Reasons for decision: Summary: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling is disregarded if you owned it as the trustee of a deceased estate and the deceased acquired the ownership interest before 20 September 1985 and the dwelling was, from the deceased's death until your ownership interest ends, the main residence of an individual who has a right to occupy the dwelling under the deceased's will. In your case, the deceased's spouse was granted a right to occupy Property Y. The terms of the will also allowed for the property to be sold and the funds used to purchase a new property which the deceased's spouse's right to occupy would then be transferred to. The will also allowed for the new property to be sold under the same conditions. Property Y was sold and Property X was purchased using the funds from the sale. Property X was then sold and Property Z was then purchased using the funds from that sale. This is therefore in accordance with the deceased's will. Property X is therefore taken as being acquired from a deceased estate. Furthermore, it was the main residence of the deceased's spouse, an individual who had a right to occupy under the deceased's will. Therefore the conditions of Section 118-195 of the ITAA 1997 have been met and you are entitled to disregard any capital gain or capital loss made from the sale of Property X.