Private ruling: Capital gains tax – main residence – overseas dwelling acquired from deceased estate
Date of advice: 8 May 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you able to disregard in full any capital gain or loss that results from the disposal of the property? | A1: Yes

Relevant facts and circumstances: You are a resident of Australia for income tax purposes You originally came to Australia in XXXX and you have lived here since You became an Australian citizen The deceased passed away during XXXX and as a result you inherited a property which was located overseas (the property) The property was the deceased’s main residence their entire ownership period After the deceased’s date of death the property was left vacant You lived in the property for a period of time, prior to your arrival in Australia There was a hand written will which you advised was not authorised by lawyers but that there was an understanding that you and another family member would inherit the property You have provided a copy of the will document The other family member resides in an overseas country You provided a sale contract for the property and you advised the property settled You have not received the money from the sale yet, you have said it is in the overseas country You are not a tax resident of the overseas country and you do not pay taxes there You will however be required to pay taxes in the overseas country on the sale of the property, you have not yet paid the tax You and your partner did not own any other residential properties during your ownership of the property You and your partner have elected to treat the property as your main residence for Australian taxation purposes There were no delays in selling the property due to the will/ownership being contested You advised the property wasn't sold initially due to family reasons. However you eventually decided to sell it.

Relevant legislative provisions: Section 104-10 of the Income Tax Assessment Act 1997 | Section 118-100 of the Income Tax Assessment Act 1997 | Section 118-145 of the Income Tax Assessment Act 1997 | Section 118-195 of the Income Tax Assessment Act 1997 | Section 118-130 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985 or the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased’s main residence just before the deceased’s death and was not then being used for the purpose of producing assessable income; and ● your ownership interest ends within two years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances) or the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: ● the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) ● an individual who had a right to occupy the dwelling under the deceased's will, or ● an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary. There is no requirement in subsection 118-195(1) of the ITAA 1997 that the individual to whom the ownership interest passed as a beneficiary actually reside in the property in the period between the date of the deceased’s death and the date that the trustee’s ownership interest ends. The requirement is that the dwelling be the main residence of that individual and continue to be so for the relevant period. It is the status of the dwelling as a main residence that is relevant. Subsection 118-145(1) deals with absences that may extend the main residence exemption of the ITAA 1997 and provides that if a dwelling that was a person’s main residence ceases to be their main residence, they may choose to continue to treat it as their main residence. Subsection 118-145(3) says if you do not use the dwelling for the purpose of producing assessable income you can treat it as your main residence under section 118-145 indefinitely. If this choice is made, no other dwelling can be treated as that person’s main residence during that period (subsection 118-145(4) of the ITAA 1997). In your case, when the deceased died an interest in the property passed to you. The property was the deceased’s main residence prior to their death, and at that time, was not being used to produce assessable income. As you lived in the property previously it is available to be treated as your main residence. During your ownership period of the property you or your partner did not own other residential property. You and your partner have elected to treat the property as your main residence for your entire ownership period. Therefore you as an individual beneficiary who disposed of the dwelling in your capacity as beneficiary, which was your main residence, meet the exemption requirements of subsection 118-195(1) and as such will be able to disregard the capital gain.