Private ruling: Capital gains tax - deceased estate - life interest - replacement asset - disposal
Date of advice: 13 May 2016
Published: June 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is any capital gain or capital loss that you make on the sale of the replacement property disregarded under subdivision 118-B of the ITAA 1997 because it was the life tenant's main residence? | A1: No.


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 118-200 | Income Tax Assessment Act 1997 Section 118-210.

Reasons for decision: Summary: Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) contains the rules for situations when capital gains and losses are ignored for main residence dwellings. There are special rules for dwellings that pass from or are owned by a trustee of a deceased estate. Section 118-195 of the ITAA 1997 contains a full main residence exemption if certain conditions are met, from a capital gain or capital loss you make from the disposal of a dwelling that you owned as trustee of a deceased estate. As the replacement dwelling was purchased after the death of the deceased, and was not owned by the deceased when they died, section 118-195 of the ITAA 1997 cannot apply. Section 118-200 of the ITAA 1997 contains a partial main residence exemption that may apply in situations where the full exemption is not available under section 118-195 of the ITAA 1997. However, its application is also limited to situations where the dwelling was owned by the deceased when they died, so section 118-200 of the ITAA 1997 also cannot apply. Section 118-210 of the ITAA 1997 applies if you are the trustee of a testamentary trust and under the deceased's will you acquire an ownership interest in a dwelling for occupation by an individual. The will of the deceased provided for the trustee to deal with certain assets of the estate at their absolute discretion for certain purposes, but did not confer upon them any right to acquire a dwelling for you. Consequently, it is considered that section 118-210 of the ITAA 1997 also does not apply to the sale of the dwelling as it wasn't acquired under the authority of the deceased's will for you. Therefore you are unable to disregard any capital gain made on disposal of the replacement property. Note: As you have owned your property for longer than 12 months, you can discount any capital gain by 50%.

Relevant facts: The deceased acquired a dwelling. (The dwelling) | The deceased passed away prior to 20 September 1985. (The deceased) | The deceased left a number of beneficiaries. | Probate was granted on dd/mm/yyyy to a professional trustee ('X'). | You have provided a number of documents which forms part of and should be read in conjunction with this private ruling; | • A copy of the will of the deceased | • Deed of settlement and release (The deed) | We have obtained the following information from these documents. | The deceased's will provides that the trustee had the discretion to purchase from the residuary estate a dwelling for their child, ('A') at 'A's' request to reside in. | 'A' was provided with a life interest in the estate. | You were provided with an interest in the estate. | The dwelling had deteriorated over time and required capital expenditure. | The dwelling also had outstanding debts. | By the Deed it was agreed between the parties that the dwelling be sold and a substitute property be purchased for 'A' to reside. | A substitute property was purchased in accordance with the Deed. (The replacement property) | A Clause of the Deed provides that the substituted property is to be registered in your name subject to a caveat protecting 'A's right to occupy the dwelling. | In 20XX 'A' was admitted to hospital with serious health issues. | 'A' was subsequently admitted to a nursing home for respite care. | 'A' was assessed as requiring a high level of care and as a result became a permanent resident. | The replacement property remained vacant. | The replacement property was subsequently sold in 20YY.