Private ruling: Capital gains tax - deceased estate - life interest - disposal
Date of advice: 18 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is any capital gain or capital loss that the estate may make on the sale or transfer of a dwelling disregarded under subsection 118-210(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Is any capital gain or capital loss that the estate may make on the sale or transfer of a dwelling disregarded under subdivision 118-B of the ITAA 1997? | A2: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-210. | Income Tax Assessment Act 1997 subsection 118-210(1)

Reasons for decision: Summary: Where a dwelling is acquired by a trustee in accordance with the will of the deceased for occupation by an individual, provided that the dwelling was the individuals main residence for the entire period, any capital gain or loss resulting from the disposal of the dwelling is disregarded. In order for a dwelling to be acquired under a will there needs to be a connection between the will and the acquisition of the ownership interest. A life tenancy in the entire estate of the deceased which provides discretion for such portions of the expected share in the capital of the estate for any grandchildren towards the advancement and education of any such grandchild is not related to the purchase by the estate of a dwelling for a beneficiary. A trustee may have general rights under State Trustee Acts to purchase a dwelling for the occupation by an individual. For example Section 11 of the Trustees Act 1958 (Vic) provides the trustee power to purchase a dwelling house as residence for beneficiary. The authority for this action is the relevant State Trustee Act and not the deceased's will. Therefore where a will is silent as to the right to occupy the dwelling of the deceased or any subsequent dwellings purchased by the trustee for the occupation of an individual, the requirements of section 118-210 of the Income Tax Assessment Act 1997 will not be met. In this situation, the deceased's will did not contain a provision that allowed for the purchase of a dwelling by the trustee for the occupation by any individual. The will of the deceased did not confer upon the trustee any direction or obligation in relation to purchasing a dwelling for any beneficiaries. Consequently, it is considered that section 118-210 of the ITAA 1997 does not apply to the transfer of the dwelling as it wasn't acquired under the authority of the deceased's will for occupation by a named individual. Therefore you are unable to disregard any capital gain made on the transfer of the dwelling.

Relevant facts: The deceased passed away prior to 19 September 1985 (the deceased) | Probate was granted to the deceased's child, (Child A). | Child A passed away in 20XX. | Child A spouse, is the executor of both estates. | You have provided a number of documents which forms part of and should be read in conjunction with this private ruling; | • A copy of the grant of probate and will of the deceased | • Deed of family arrangement | • Deed of further family arrangement | We have obtained the following information from these documents. | In the deceased's gift of the residue of their estate, the deceased provided as follows - | "… I GIVE DEVISE AND BEQUEATH the whole of my property to my Trustees upon the following trusts: | (a) for my child during their lifetime and on their death | (b) UPON TRUST for such of their children as shall survive them and if more than one as tenants in common in equal shares as soon as each child shall attain the age of twenty-one years PROVIDED ALWAYS that my Trustee may apply such portions of the expected share in the capital of my estate for any of my grandchildren in their discretion towards the advancement and education of any such grandchild …" | The deceased's will, provides child A with a life interest in the deceased's estate. | The deceased's grandchildren (B) and (C) are the remainder beneficiaries. | By the deed of arrangement it was agreed between the parties that a dwelling would be purchased by the estate for grandchild B to reside in as their main residence. | Grandchild B continues to reside in the dwelling. | Child A contributed some of the funds towards the purchase of the dwelling. | The will of the deceased does not provide a clause or direction that a dwelling is to be purchased by the estate. | You will transfer title to the dwelling to grandchild B.