Private ruling: capital gains tax - deceased estate - life tenants - disposal of main residence
Published: October 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1:  | A1: 

Relevant facts and circumstances: The deceased acquired a property prior to 20 September 1985. The deceased resided in the property as their main residence for their entire ownership period. The deceased passed away approximately 20 years ago. Under the deceased's will, a specified number of their children had the right to continue to reside in the property rent free until their marriage, death or moving out for more than six months. Approximately 13 years ago a Deed of Family Arrangement was signed by all the beneficiaries as one of the beneficiaries had personal difficulties, so several of the other beneficiaries 'bought out' their share. A number of the deceased's children moved out of the property over a period of three years leaving a number of siblings residing there. Approximately seven years ago, you obtained a private ruling on the disposal of the property for the year ended 30 June 200X. One of the remaining siblings has now moved out of the property. The property is schedule for auction later this year. It is expected that the property will be disposed of before the end of this year. The remaining sibling will continue to reside in the property until settlement occurs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 118-195. | Income Tax Assessment Act 1997 Section 128-15.

Reasons for decision: Summary: The most common capital gains tax (CGT) event, CGT event A1 which occurs when you dispose of a CGT asset and the time of the event is when you enter into the contract for the disposal or if there is no contract - when the change of ownership occurs. | Detailed Reasoning - Deceased estate: If you acquire an asset owned by a deceased person as their executor, you are taken to have acquired the asset on the day the person died. Your acquisition date of the property is the deceased's date of death. If a deceased person acquired their asset before 20 September 1985, the first element of your cost base and reduced cost base (that is, the amount taken to have been paid for the asset) is the market value of the asset on the day the person died. In administering and winding up a deceased estate, an executor may need to dispose of some or all of the assets of the estate. Assets disposed of in this way are subject to the normal rules and any capital gain the executor makes on the disposal is subject to CGT. CGT event A1 occurred when you disposed of the deceased's main residence. However, there are a number of different exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event can be disregarded, either in full or in part. One such exemption relates to the disposal of a dwelling acquired by the executor of a deceased estate. Section 118-195 of the Income Tax Assessment Act 1997 outlines the conditions under which the capital gain or capital loss can be disregarded in full. Where a dwelling was originally acquired by the deceased before 20 September 1985, and an individual or individuals have the right to occupy the property under the deceased's will, any capital gains or capital losses arising from the disposal of the property will be disregarded if the individual or individuals occupied the property as their main residence for all of the executor's ownership period. Your ownership period of the property commenced when the deceased died and your ownership period will end when the property is disposed of. As an individual with the right to occupy will occupy the property as their main residence for all of your ownership period you will be entitled to the full main residence exemption. Therefore, any capital gain or capital loss made on the disposal of the property is disregarded.

Subject: capital gains tax - deceased estate - life tenants - disposal of main residence: Question: Is the capital gain or capital loss made on the disposal of the property disregarded in full?