Private ruling: Capital gains tax
Date of advice: 21 February 2019
Published: May 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a full main residence exemption on the property? | A1: No | Q2: Are you entitled to a partial main residence exemption on the property? | A2: Yes

Relevant facts and circumstances: The deceased passed away in the 2010 income year. The property acquired by the deceased in pre 1985. The deceased lived in the property as their main residence for the whole of their ownership period. The settlement date for the property was in the 2018 income year. The deceased’s spouse lived in the property as their main residence up until their death in the 2016 income year. The property was less than 2 hectares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Subsection 118-195(1) | Income Tax Assessment Act 1997 Section 118-200.

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that capital gains tax (CGT) is incurred when a CGT event takes place and either a capital gain or a capital loss results. Any capital gain is added to any other assessable income for the relevant year and is then taxed at the appropriate marginal tax rate. A capital loss can be offset against other current year capital gains or carried forward indefinitely to be offset against future year capital gains. The most common CGT event is known as CGT event A1 and generally occurs whenever there is a change in ownership of a CGT asset from one party to another. Subsection 118-195(1) of the ITAA 1997 provides that a trustee of a deceased estate disregards a capital gain or loss from a dwelling that a deceased person acquired before 20 September 1985 if: (1) the trustee’s ownership interest ends within 2 years of the deceased’s death, or (2) from the deceased’s death until the trustee’s ownership interest ends, the dwelling was the main residence of one or more of the following persons: (a) the spouse of the deceased immediately before death; or (b) an individual who had the right to occupy the dwelling under the deceased’s will; or (c) an individual who brought about a CGT event where the ownership interest in the dwelling passed to the same individual as a beneficiary. You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, you did not sell the property within two years of the deceased’s passing. Therefore, a full main residence exemption will only be available after this time if the dwelling is the main residence of one of the specified individuals during the trustee’s ownership period. The deceased’s spouse lived in the property from their death in the 2010 income year until their death in the 2016 income year. A full main residence exemption is not available. You are eligible for a partial exemption under section 118-200 of the ITAA 1997. You can only have the main residence exemption up until XX XXX 2016 when the deceased’s spouse died. For the period from XX XXX 2016 until the property was sold early September 2017 CGT will be payable. You calculate your capital gain or capital loss using the formula: Capital gain or capital loss amount × Non-main residence days Total days Capital gain or capital loss is the amount that you made from the disposal of the dwelling (before applying any main residence exemption). Non-main residence days is the sum of: ● the number of days in the period from the death of the deceased until your ownership interest ends when the dwelling was not the main residence of one of the following: ● a person who was the spouse of the deceased (except a spouse who was permanently separated from the deceased) ● an individual who had a right to occupy the dwelling under the deceased’s will, or ● you, as a beneficiary, if you disposed of the dwelling as a beneficiary. Total days is: ● the number of days from the deceased’s death until you disposed of your ownership interest. You would then be able to use the discount method to calculate your capital gain.