Private ruling: Income tax - main residence exemption
Date of advice: 13 September 2018
Published: November 2018
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Will a full main residence exemption apply to allow the executors of the estate to disregard any capital gain on the sale of the dwelling? | A1: Yes. Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss made from the disposal of a dwelling is disregarded where the deceased acquired the dwelling after 20 September 1985 and the dwelling was the main residence of the deceased prior to their death. In this case even though the deceased lived in an aged care home prior to their death, you can continue to treat the dwelling as their main residence. It is considered that a full main residence exemption will apply to the sale of the property. | Q2: Will a partial main residence exemption apply to allow the executor of the estate to disregard any capital gain on the sale of the dwelling? | A2: Not Applicable | Q3: Does the ownership interest in the dwelling, include the ownership interest of the bare trust whereby the child A holds a dwelling as bare trustee for the deceased and for the purposes of the main residence exemption pursuant to section 118-195 of the ITAA 1997? | A3: Yes. It is considered that the deceased had a vested, indefeasible and absolute entitlement to the property against Child A as the trustee of the bare trust. Section 106-50 of the ITAA 1997 will apply to treat any act done by the trustee as done by the beneficiary. In this circumstance the sale of the property will be treated as though the deceased estate sold the property. For the purposes of the CGT provisions Child A can disregard any gain or loss made on the disposal of the property as section 106-50 will apply to treat any act done by the trustee as an act done by the beneficiary, which is in this case the deceased estate.

Relevant facts and circumstances: The deceased acquired a residential property after 20 September 1985. The deceased died in 20XX. The deceased acquired a share of the property from the deceased estate of the deceased’s father who died in 20XX. In 20XX, the deceased wanted to acquire the remaining portion of the property from deceased estate of the Deceased’s father. The deceased wanted to acquire the remaining portion of the property from the deceased’s siblings who were beneficiaries having equal shares in the estate of the deceased’s father. At the time of the purchase, the deceased did not have the financial resources in the short term to acquire the remaining portion of the property. The bank would not lend the deceased any money in the short term to finance the remaining purchase of the property without financial involvement of the deceased’s child, Child A. A joint loan was obtained by the deceased and Child A from a lending institution in order to complete the purchase of the property. The loan provider insisted that a joint loan was taken out and the names on the loan must also appear on the title deeds. The deceased and Child A always intended that Child A’s name on the title deed was there solely for finance purposes. The title of the property was registered as tenants in common with the Deceased having an interest in the property and Child A having an interest in the property. The deceased paid the outgoings, council rates, water rates and insurance, in relation to the property. The deceased had the use and enjoyment of the property as their dwelling or main residence from 20XX until 20XX when the deceased required aged care assistance due to ill health. X months after the purchase of the property, the deceased paid a first instalment of $XXX towards reducing the loan principal. Over a X year period, the deceased repaid the entire loan, including interest and other charges. The deceased paid these funds from the funds the deceased received from the estate of the deceased’s father. Child A does not regard themselves as an owner of the property, other than having an ownership interest on behalf of the deceased and as a beneficiary of the deceased estate. The deceased did not pay any rent to Child A. Child A did not live in the property at any time and owns another dwelling. A verbal agreement was entered into in regard to the above events and conduct and in relation to the purchase of the property. The other co-executor of the deceased estate has living in the property since 20XX. The executors of the deceased estate have not collected rent from the occupation by the other co-executor. The executor of the decease estate will sell the property prior to October 20XX and thereafter distribute the proceeds to the beneficiaries. Prior to the sale of the property the executors will obtain an independent valuation of the market value of the property. The property will not be sold for less than market value. On completion of the sale of the property, the sale proceeds from the sale of the property will be paid to all of the beneficiaries of the deceased estate in equal shares. Child A will not be directly paid their interest of the sale proceeds from the sale of the property. Child A is a beneficiary of the estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 106-50 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 128-10 | Income Tax Assessment Act 1997 Section 128-15


Subject: Income tax - main residence exemption: This ruling applies to the beneficiaries of the trust and to the trustee and to any future trustees, for as long as the ruling remains current.