Private ruling: Deceased estates and 2 year disposal rule
Date of advice: 17 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and Answer: | Are you entitled to disregard in full any capital gain or loss that results from the disposal of your property? | Yes.

Relevant facts and circumstances: You, and your parents each owned an interest of a property (the property) as joint tenants. The property was purchased before 20 September 1985, and was the main residence of your family. Although you moved out of the property a number of years later, the property remained the main residence of your parents. After 19 September 1985, your parent passed away willing their interest in the property to your other parent. The property remained the main residence of your parent until their death. A number of years later, your parent passed away willing their interest in the property to you giving you total ownership of the property. The property was disposed of within 2 years of your parents passing.

Relevant legislative provisions: Income Tax Assessment Act 1997 S ection 102-20. | Income Tax Assessment Act 1997 S ection 104-1. | Income Tax Assessment Act 1997 S ection 108-5. | Income Tax Assessment Act 1997 S ection 118-95.

Reasons for decision: Summary: You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Property is a CGT asset under section 108-5 of the ITAA 1997. CGT event A1 occurs when you dispose of a CGT asset to someone else, under section 104-10 of the ITAA 1997. Generally a capital gain or loss that results from an asset you acquired before 20 September 1985 is exempt from capital gains tax. | Detailed Reasoning - Deceased estates: Subdivision 118-B of the ITAA 1997 includes provisions about an exemption from CGT which apply to main residences as well as specific rules in regard to dwellings which you acquire as the executor or beneficiary of a deceased estate. Subsection 118-195(1) of the ITAA 1997 provides that a capital gain or loss can be disregarded when you sell a deceased persons dwelling that you acquired as the beneficiary of that persons deceased estate, provided that your ownership interest ends within 2 years of the person's death and either: (a) the deceased acquired the dwelling before 20 September 1985; or (b) if the deceased acquired the dwelling after 20 September 1985, the deceased was using the dwelling as their main residence at the time of their death. With regards to the property in question, we consider that there are 3 ownership interests. They are • your pre-CGT interest • your parent's pre-CGT interest • your parent's post-CGT interest (interest that was willed to your parent after your other parent'ss passing) | Detailed Reasoning - Your pre - CGT interest (initial 1/3 ownership interest): Pre 20 September 1985 you and your parents each purchased an ownership interest in a property. As this interest was purchased pre 20 September 1985 any capital gain or loss that results from its disposal is disregarded. | Detailed Reasoning - Your parents pre-CGT interest and post-CGT interest: Your parent purchased a pre-CGT interest in the property, and after your parent's passing inherited the remaining post- GT interest. Although these 2 interests differ, as the property had remained your parent's main residence and was disposed of within 2 years of your parent's passing they satisfy the conditions outlined under subsection 118-195(1) of the ITAA 1997. Therefore you are entitled to disregard any capital gain that results from the disposal of these interests under subsection 118-195(1) of the ITAA 1997. | Detailed Reasoning - Conclusion: Accordingly, you are entitled to disregard in full any capital gain or loss that results from the disposal of your property.