Private ruling: Capital Gains Tax
Published: September 2011
Ruling period: 30 June 2010 to 30 June 2011

Ruling: Question and Answer | Can you, as the beneficiaries of the deceased estate, disregard the capital gain made on the disposal of the former main residence of the late xx xx? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Prior to 20 September 1985 your parent acquired a property which was occupied as a main residence until death. On xx xx xx your parent made a Will appointing sibling 1 and sibling 2 to be executors and trustees of the Will. Your parent bequeathed property to their spouse for a lifetime use and benefit. On xx xx xx your parent died. Following your parent's death the spouse continued to reside in the property as a main residence. On xx xx xx the spouse died. On the death of the spouse the property went to the siblings equally. On xx xx xx probate was grated. On xx xx xx the property was transferred to the beneficiaries, more than two years from the parent's death. On xx xx xx the property was sold a number of months after the spouse's death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-105 | Income Tax Assessment Act 1997 Section 118-195. | Income Tax Assessment Act 1997 Section 118-200. Reason for Decision | A capital gain or capital loss is made if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset). Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset is any kind of property, or legal or equitable right that is not property. The most common CGT event is CGT event A1, the disposal of an asset. However, there are a number of exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss made as a result of a CGT event is disregarded, either in full or in part. | One such exemption relates to the passing of the asset from the legal personal representative to the beneficiaries. A second relates to the disposal of a dwelling acquired due to being a beneficiary of a deceased estate. Section 118-195 of the ITAA 1997 outlines the conditions under which a capital gain or capital loss can be disregarded in this situation. | Where a deceased acquired a dwelling before 20 September 1985, section 118-195 of the ITAA 1997 provides that a capital gain or capital loss can be disregarded when: | (1) you disposed of your ownership interest within two years of the | deceased's death, or | (2) if you did not dispose of your ownership interest within two years, the | dwelling was, from the deceased's death until your ownership interest | ended , the main residence of one or more of: | (a) The deceased's spouse at the time of their death (except a spouse who was living permanently separately and apart from the deceased); or | (b) an individual who had a right to occupy the dwelling under the deceased's will. | (c) an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary. | The ownership interest of a beneficiary commences on the date of death of the deceased and ends on the disposal of the dwelling. | You did not dispose of your ownership interest in the dwelling within two years of the deceased's death. | However, the dwelling was occupied by the deceased's spouse (the life tenant) who had the right to occupy the dwelling under the Will of the deceased. The life tenant occupied the dwelling as a main residence from the date of death of the deceased on xx xx xx up until death on xx xx xx. | This leaves a number of months between the date of death of the life tenant and when your ownership ended on xx xx xx where the dwelling was not the main residence of any of the persons listed in section 118-195 of the ITAA 1997. | Consequently, section 118-195 of the ITAA 1997 will not operate to allow you to completely disregard the capital gain that you made on the disposal of the dwelling. | Partial main residence exemption | However, where section 118-195 of the ITAA 1997 does not apply, you may still be able to obtain a partial exemption under section 118-200 of the ITAA 1997. | Under section 118-200 of the ITAA 1997 you calculate your capital gain or capital loss by using the formula: | Capital gain or capital loss X Non-main residence days | Total days | Where the CG or CL amount is the capital gain or capital loss you would have made from the CGT event apart from this Subdivision. | The deceased acquired the dwelling before 20 September 1985 and always used it as a main residence until death. The spouse, the life tenant, continued to reside in the dwelling until death. | Under those particular circumstances, section 118-200 of the ITAA 1997 provides that the Non-main residence days will be the number of days in the period from the death of the life tenant until your ownership interest ended | The Total days will be the number of days from the deceased's death until your ownership interest ended. | The deceased's Will provides that the beneficiaries are equally entitled to the real estate, this would include any capital gain or capital loss derived from the sale of property. | Therefore, as the beneficiaries were presently entitled to the property they will need to include their share of the capital gain or capital loss in their income tax returns.

Reasons for decision: Summary: A capital gain or capital loss is made if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset). Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset is any kind of property, or legal or equitable right that is not property. The most common CGT event is CGT event A1, the disposal of an asset. However, there are a number of exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss made as a result of a CGT event is disregarded, either in full or in part. One such exemption relates to the passing of the asset from the legal personal representative to the beneficiaries. A second relates to the disposal of a dwelling acquired due to being a beneficiary of a deceased estate. Section 118-195 of the ITAA 1997 outlines the conditions under which a capital gain or capital loss can be disregarded in this situation. Where a deceased acquired a dwelling before 20 September 1985, section 118-195 of the ITAA 1997 provides that a capital gain or capital loss can be disregarded when: (1) you disposed of your ownership interest within two years of the deceased's death, or (2) if you did not dispose of your ownership interest within two years, the dwelling was, from the deceased's death until your ownership interest ended , the main residence of one or more of: (a) The deceased's spouse at the time of their death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will. (c) an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary. The ownership interest of a beneficiary commences on the date of death of the deceased and ends on the disposal of the dwelling. You did not dispose of your ownership interest in the dwelling within two years of the deceased's death. However, the dwelling was occupied by the deceased's spouse (the life tenant) who had the right to occupy the dwelling under the Will of the deceased. The life tenant occupied the dwelling as a main residence from the date of death of the deceased on xx xx xx up until death on xx xx xx. This leaves a number of months between the date of death of the life tenant and when your ownership ended on xx xx xx where the dwelling was not the main residence of any of the persons listed in section 118-195 of the ITAA 1997. Consequently, section 118-195 of the ITAA 1997 will not operate to allow you to completely disregard the capital gain that you made on the disposal of the dwelling. Partial main residence exemption However, where section 118-195 of the ITAA 1997 does not apply, you may still be able to obtain a partial exemption under section 118-200 of the ITAA 1997. Under section 118-200 of the ITAA 1997 you calculate your capital gain or capital loss by using the formula: Capital gain or capital loss X Non-main residence days | Detailed Reasoning - Total days: Where the CG or CL amount is the capital gain or capital loss you would have made from the CGT event apart from this Subdivision. The deceased acquired the dwelling before 20 September 1985 and always used it as a main residence until death. The spouse, the life tenant, continued to reside in the dwelling until death. Under those particular circumstances, section 118-200 of the ITAA 1997 provides that the Non-main residence days will be the number of days in the period from the death of the life tenant until your ownership interest ended The Total days will be the number of days from the deceased's death until your ownership interest ended. The deceased's Will provides that the beneficiaries are equally entitled to the real estate, this would include any capital gain or capital loss derived from the sale of property. Therefore, as the beneficiaries were presently entitled to the property they will need to include their share of the capital gain or capital loss in their income tax returns.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.