Private ruling: CGT - Deceased Estate - Disposal of dwelling
Date of advice: 3 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 January 1999.

Ruling: Q1: Are the executors of a deceased estate entitled to a main residence exemption upon the disposal of a dwelling that became the main residence of the deceased's spouse? | A1: Yes.

Relevant facts and circumstances: Your parent (the deceased) owned a dwelling. It was purchased sometime in the 1990's and some improvements were made to it. The deceased lived in the dwelling with your other parent (deceased's spouse) until the deceased passed away some years later. In the deceased's will you and your sibling were appointed as executors and trustees of the deceased's estate. The deceased's will bequeathed the dwelling to you and your sibling and not directly to your other parent, (the deceased's spouse). You believe that your parent may have been poorly advised in drafting their will and had not considered that their spouse may out live them. You and your sibling had no intention of taking ownership of the dwelling from your other parent, at the time you were advised not to execute your parent's will in the immediate or longer term future. Your other parent continued to live in the house by themselves until late 2012, when they went to live with your sibling until late 2013 and then returned to live with you (your parent was unable to remain living independently safely). Since your parent vacated the dwelling in late 2012 it has remained vacant. Your parent has paid all of the bills, has made repairs and improvements to the house throughout all the years that they lived there. You and your sibling have for all intents and purposes considered the dwelling to be your parent's home and you have always had the intention to sell it for their benefit when they required the funds to enter a nursing home. Your parent has an advanced aged related disease and it's likely that they will need to be cared for in a nursing home in the near future. The Refundable Accommodation Deposit (RAD) payable for a room in most nursing homes is a large amount and that is the case for where your parent will most likely move to. Your parent (deceased's spouse) has chosen to treat the dwelling as their continuing main residence even though they no longer reside there (absence choice). They will continue to make this choice until your ownership interest (that of executor and trustee) ends. The following documents are to be read with and form part of the scheme for the purposes of the following private binding ruling: • Copy of the certificate of title for the dwelling; and • Copy of the last will and testament of the deceased.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: You as executors of your parent's deceased estate will be entitled to a main residence exemption upon the disposal of a dwelling that became the main residence of the deceased's spouse. | Detailed Reasoning - Detailed reasoning: Capital gains tax (CGT) is the tax you pay when a CGT event happens to a CGT asset, such as a dwelling acquired from a deceased estate. The most common event happens when an asset is disposed of ((section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). The main residence of a deceased person that is acquired as the result of a will is a CGT asset. The trustee of a deceased estate can disregard a capital gain or capital loss when a CGT event happens to a dwelling acquired by the deceased person on or after 20 September 1985 where the dwelling was their main residence before they passed away and was not being used to produce income if: • The ownership interest of the beneficiary or trustee ends within two years of the deceased's death; or • The dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of; a) The spouse of the deceased immediately before death, or b) An individual who had a right to occupy the dwelling under the deceased's will (section 118-195 of the ITAA 1997). In your situation, the spouse of the deceased used the property as their main residence and therefore these requirements have been satisfied. Whilst the deceased's spouse is no longer living in the dwelling, they have made the choice to continue to treat the dwelling as their main residence while they live with you and or when they move into an aged care facility. Therefore you will be able to disregard any capital gain or loss made in relation to the sale of the dwelling. Note: The continuing main residence choice for the dwelling will cease to apply if your parent dies or when the dwelling is sold by you as executor, whichever happens first.