Private ruling: Capital gains tax - deceased estate - disposal of main residence
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the capital gain or capital loss made on the disposal of the deceased's main residence disregarded? | A1: 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. Your parent acquired a property prior to 20 September 1985. Your parent resided in the property as their main residence with their de facto partner until their death approximately X years ago. Under your parent's will the property was left as follows: · a specified interest to their de facto · a specified interest to you, and · a specified interest to your sibling. Your parent's de facto continued to reside rent-free in the property until their death last year. Last year the property was valued at $X. Under your parent's de facto's will both you and your sibling each acquired a further interest in the property. You and your sibling now owned a 50% interest in the property. The property has never been used to produce assessable income. The property was disposed of in this year.

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 128-15

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Reasons for decision: The most common capital gains tax (CGT) event, CGT event A1, which occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract - when a change of ownership occurs. CGT event A1 occurred when you disposed of your interest in the property. | Detailed Reasoning - Deceased estate: When a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset owned by the deceased, just before death, is generally disregarded. Generally, assets inherited through a deceased estate are acquired on the deceased's date of death. You are taken to have acquired a specified interest in the property on your parent's date of death. You acquired another interest in the property on the death of your parent's de facto's date of death. As you have acquired both interests in the property after 20 September 1985, the property is subject to CGT upon its disposal. | Detailed Reasoning - Main residence: If you inherit an interest in a deceased person's property, you may be exempt or partially exempt when a CGT event happens to it. If you acquire a dwelling the deceased had owned, there are special rules for calculating your cost base. These rules apply in calculating any capital gain or capital loss when a CGT event happens to the dwelling. The first element of the cost base and reduced cost base of a dwelling is the market value at the date of death if either: · the dwelling was acquired by the deceased before 20 September 1985, or · the dwelling passes to you after 20 August 1996 (but not as a joint tenant) and it was the main residence before their death and was not being used to produce income at that date. In your case, the cost base of the two interests you acquired in the property as follows: · a specified interest acquired from your parent's estate - market value of this interest on their date of death, and · a specified interest acquired from your parent's de facto's estate - the market value of this interest on their date of death. Where the deceased acquired their interest in a dwelling before 20 September 1985, and it passes to you as a beneficiary, any capital gain or capital loss you make will be disregarded if either of the following applies: · you dispose of your ownership interest within two years of the deceased death; or · from the date of the deceased's death until you dispose of your ownership interest, the dwelling was not used to produce income. For this period, the dwelling must also have been the main residence of one or more of: o a person who was the spouse of the deceased immediately before the deceased death; o an individual who had a right to occupy the dwelling under the deceased will; or o you as a beneficiary, if you dispose of the dwelling as a beneficiary. A capital gain or capital loss can be completely disregarded when a CGT event happens to a deceased persons main residence that you acquired as a trustee or beneficiary of a deceased estate after 20 September 1985, if: · you are an individual and any of the following apply: o your ownership interest ends within two years of the person's death; o from the deceased's death until your ownership interests ends the dwelling was the main residence of one or more of: § the spouse of the deceased immediately before death, § an individual who had a right to occupy the dwelling under the deceased's will, or § the individual as a beneficiary if they are disposing of the dwelling as a beneficiary. As you acquired the two separate interests at different times, we need to look at these interests to determine whether you are liable for CGT on the disposal of the property. | Detailed Reasoning - Interest acquired from parent's estate: Your parent acquired the property before 20 September 1985, and as you did not dispose of your interest within two years of parent's date of death and it was not the main residence of their de facto for your entire ownership period you are not entitled to the full exemption on this interest in the property | Detailed Reasoning - Partial exemption: Although you are not entitled to a full exemption on this interest from CGT on this interest you are entitled to a partial exemption. In your case, the capital gain or capital loss will be calculated using the following formula: Capital gain or capital loss amount X non-main residence days total days. Where: A capital gain or capital loss is the difference between the capital proceeds and the cost base of the property. Non-main residence days is: the number of days from your parent's death until date of settlement of the disposal contract when the dwelling was not the main residence of your defacto parent or yourself. Total days is: the number of days in the period from the date of your parents death until date of settlement of the disposal contract. If you acquired this one-third interest in the property prior to 21 September 1999, you can use either the indexation or discount method to calculate your capital gain. For more information please see the enclosed fact sheet which has been taken from out website - www.ato.gov.au. Further information is also available on the website. | Detailed Reasoning - One-sixth interest from your parent's de facto's estate: You acquired this interest from your parent's de facto's estate. Your parent's de facto acquired their interest in the property after the 20 September 1985. As you have disposed of this interest within two years of their death any capital gain or capital loss made on this interest is disregarded.