Private ruling: Capital gains tax
Date of advice: 26 July 2016
Published: September 2016
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a full main residence exemption if you sell the property within 2 years of the deceased's death? | A1: Yes.

Relevant facts and circumstances: You are a testamentary trust set up under the will of the deceased. Included in the assets of the deceased estate is a residential property which was the deceased's main residence. The property was purchased after 20 September 1985. The property is not more than 2 hectares. Assets in the deceased's were passed on to the legal personal representative (LPR) upon death and then from the LPR to you in accordance with the will. The property has since been rented out to an unrelated party for rental income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) applies generally to include a capital gain or capital loss in your assessable income. | Detailed Reasoning - Main Residence Exemption: In your situation, a capital gain or capital loss may be disregarded under subsection 118-195 of the ITAA 1997 in certain circumstances. This provision provides that any capital gain or capital loss you make from the sale of a residence that you own as the trustee of a deceased estate, where the deceased acquired the property on or after 20 September 1985, is disregarded if: • the sale happens within two years of the deceased's death • the residence was the deceased's main residence just before they died and was not then being used to produce assessable income. ATO ID 2006/34 states that the words 'trustee of a deceased estate' as used in section 118-195 of the ITAA 1997 are not limited to a legal personal representative but include the trustee of a testamentary trust. In your case, the property was the deceased's main residence just before they died. The property has since been rented out. In accordance with the deceased's will the property was transferred to a testamentary trust. Therefore, you meet the requirements of section 118-195 of the ITAA 1997 and can disregard in full any capital gain or loss made from the sale of the property provided it is sold within two years of the deceased's death.