Private ruling: Deceased estate - capital gain
Published: January 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the capital gain or capital loss on the disposal of a property calculated from the time the deceased passed away? | A1: Yes.

Relevant facts and circumstances: The property was acquired prior to 20 September 1985 by the deceased and used as their main residence. The deceased passed away. Their will stated the property was to remain for an individual to reside in or enjoy the rents and profits therefrom for their life. Thereafter, the property was to be divided equally between the remaining siblings. The individual passed away and the property was sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-210

Reasons for decision: Summary: In determining a capital gain or capital loss from the disposal of a deceased estate's asset, the capital gain or loss is calculated from the time of the deceased's death until the date of the asset's disposal. Where the property was the main residence of the deceased before their death and the main residence of an individual granted a life interest in the property in the deceased's will, the gain attributable to the period the property was the individual's main residence is disregarded. | Detailed Reasoning - Detailed reasoning: A capital gain or capital loss is made where you dispose of an asset (including a dwelling) you own or have an ownership interest in. Special rules exist for the treatment of the capital gain or capital loss where you are the trustee of a deceased estate and, under the deceased's will, you acquire an ownership interest in a dwelling where a life interest has been granted to an individual ('the individual'). Subsection 118-210(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if you receive money or property for the disposal of the property the trustee does not make a capital gain or capital loss if the dwelling was the main residence of the individual from the time the trustee acquired the ownership interest in it until the time of the disposal. Where the dwelling was the main residence of the individual for only part of that period a part of the capital gain or capital loss is disregarded. Subsection 118-210(4) of the ITAA 1997 provides the following formula to determine the capital gain or capital loss made by the trustee: Capital gain or loss * Non-main residence days / days that that period Where: 'Non-residence days' is the number of days in that period that the dwelling was not the individual's main residence. 'Days in that period' is the number of days between the deceased's death and the disposal of the property. Essentially, you calculate any capital gain or capital loss from the time the deceased passed away until when the property is disposed of. You then apportion the capital gain or loss between the period when the property was the main residence of the individual and the period it was not the individual's main residence. The capital gain or capital loss attributable to the period that the house was not the individual's main residence is the amount that is used to determine your net capital gain or net capital loss for the relevant income year. In your case, on the death of the deceased, the title of the main residence devolved to their estate. An individual continued to reside in the main residence, under the terms of the deceased's will, until their death. The property was the main residence of the deceased up until their death, and, the main residence of the individual up until their death. From that date until settlement of the contract for sale of the property, the dwelling was not the main residence of any of the above mentioned people. Accordingly, you are only able to disregard that part of the capital gain made on disposal of the property for the days in which the property was considered to be the individual's main residence. In this instance, you will need to use the above mentioned formula to calculate the capital gain made on the disposal of the property.