Private ruling: Deceased Estate - Main residence
Published: August 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013.

Ruling: Q1: Is there an entitlement to disregard the capital gain or loss on the disposal of the deceased's main residence? | A1: Yes

Relevant facts and circumstances: The deceased acquired a property and lived in it as their main residence. The deceased's child lived with the deceased ever since they acquired the property. The deceased died on in the year 20XX. The deceased's child was allowed to remain in the property rent free. The Will states that deceased's child was entitled to remain residing in the property for up to 10 years or until death or marriage. When the property was to be sold, the proceeds were to be distributed equally amongst the children. On the completion of 10 years the property came onto the market for sale. The property is on a large block and therefore only developers were interested in purchasing the property for the price. The deceased's child continued to live in the property until settlement date. The settlement date for the property was during the financial year ending 30 June 2015. The property has never been rented out or used to produce income.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a capital gains tax event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: • who occupied the dwelling after the date of the deceased's death, or • whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: • 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, or • your ownership interest ends within two years of the deceased's death. In this case, when the deceased died, the deceased's child had a right to occupy the dwelling under the deceased's will. The property is on a large block and therefore only developers were interested in purchasing the property for the price. Based on the facts provided, although the deceased's child sold the property approximately 14 years from the deceased's date of death, they had a right to occupy the dwelling under the deceased's will. The deceased's child continued to reside in the property until the settlement date and never used the property to produce income. Therefore there is an entitlement for a full exemption from any capital gains under section 118-195 of the ITAA 1997.