Private ruling: Deceased estate - sale of property
Published: August 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the capital gain or capital loss made on the disposal of your interest in the inherited property disregarded? No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-145. | Income Tax Assessment Act 1997 Section 118-195. | Income Tax Assessment Act 1997 Section 118-200.

Reasons for decision: Summary: Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) advises that if you are an individual who owns a dwelling in a capacity as trustee/executor/ beneficiary of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased after 20 September 1985 if: · the property was the deceased's main residence just prior to their death; · it was not being used to produce assessable income at this time; and · your ownership interest ends within 2 years of the deceased's death or · the dwelling was the main residence of: a) a person who was the spouse of the deceased immediately before the deceased's death (but not a spouse who was permanently separated from the deceased) b) an individual who had a right to occupy the home under the deceased's will, or c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual. You have argued that the CGT event was brought about by a sibling for whom the dwelling was the main residence. However, the sibling only disposed of their interest in the dwelling. You disposed of your interest in the dwelling - thus you brought about the CGT event on your interest in the dwelling and the dwelling was not your main residence from the deceased death. You have said that even a literal interpretation of the section means that there is no requirement that the dwelling is the main residence of the individual who brings about the CGT event. You go on to say that the purpose and object of the law is that the exemption should extend to you, further you argue that when the literal meaning of legislation is 'unclear, produces ambiguity or inconsistency' then a 'purposive' approach should be made to interpreting the legislation. The Commissioner believes a literal interpretation of the wording is not unclear, is not ambiguous and does not create inconsistency. It clearly states that if the dwelling was the main residence of an individual to whom the ownership interest passed as a beneficiary, and a CGT event was brought about by that individual , then that person is exempt from tax on any capital gain. In your case, the deceased acquired the dwelling after 20 September 1985 and it was the main residence of the deceased up until he/she passed away. The dwelling was not used to produce assessable income and the dwelling was used by your sibling as a main residence. Your ownership interest did not end until some years after the date of death, which is not within two years of the date of death, and the property was never occupied by you as your main residence, therefore, you can only apply the main residence exemption up until the date of death. Any gain made on disposal of this dwelling will not be fully disregarded as the conditions set down in section 118-195 of the ITAA 1997 have not been satisfied.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You inherited an interest in a property some years ago. | The property was acquired by the deceased after 20 September 1985. | The dwelling was the deceased's main residence until the date of death. | Your sibling was the deceased's primary carer until the date of death. | Your sibling was permitted to reside in the dwelling until the property was disposed of because: | The dwelling was your sibling's main residence; and your sibling was also a beneficiary of an interest in the dwelling. | You did not reside in the dwelling. | A contract for the sale of the dwelling was entered into in about a year ago with settlement taking place a month later. | The proceeds of the sale were split equally between you and your siblings. | The property was never used to produce income and you did not receive any income from your sibling that resided there. | All expenses relating to the property were discharged in equal shares.