Private ruling: Deceased estate
Date of advice: 16 April 2025
Published: 30 June 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: XX XX 20XX

Ruling: Q1: Are you eligible for a partial main residence exemption on the disposal of the property under section 118-200 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: On XX XX 19XX, the deceased purchased a property including a dwelling with their late spouse as joint tenants. The property's land size was less than 2 hectares. The property was used as their main residence from the time they acquired it until their spouse passed away. On XX XX 20XX, the spouse passed away, and the deceased acquired their 50% ownership interest through the right of survivorship. The property was the deceased's main residence until moving into a retirement village in XX 20XX. You chose, on behalf of the deceased to continue to treat the property as the deceased's main residence until the maximum absence period ended on XX 20XX. From XX XX 20XX to XX XX 20XX, the property was used for income producing purposes. On XX XX 20XX, the deceased passed away. On XX XX 20XX, the Executor passed away. On XX XX 20XX, you signed a contract for the sale of the property. On XX XX 20XX, settlement occurred.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-190 | Income Tax Assessment Act 1997 section 118-197 | Income Tax Assessment Act 1997 section 118-200

Reasons for decision: Summary: The capital gain on the deceased's original 50% ownership interest is disregarded as they acquired it before 20 September 1985 and you sold the property within 2 years of their death. You are not entitled to a full exemption for the deceased's second 50% ownership interest acquired on their spouse's death. The deceased acquired this ownership interest after 20 September 1985, and the property was being used to produce income just before their death. Therefore, you are entitled to a partial main residence exemption for the deceased's second 50% ownership interest on the disposal of the property. The exemption is adjusted for the period exceeding 6 years that the property was used to produce income. The deceased is taken to have acquired their ownership interest in the property at the date their spouse died for its market value at that time. You are also entitled to the 50% CGT discount on the sale of property. | Detailed Reasoning - Detailed reasoning: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides conditions required to disregard the capital gain made by beneficiaries and trustees of a deceased estate on the sale of a dwelling. Subsection 118-195(1) of the ITAA 1997 provides you can disregard a capital gain or loss if you meet at least one condition in the second column and one condition in the third column: | Detailed Reasoning - Second column: • the deceased acquired their ownership interest in the dwelling before 20 September 1985, or • the deceased acquired their ownership interest in the dwelling 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 | Detailed Reasoning - Third column: • the dwelling was from the deceased's death until your ownership interest ends, the main residence of one or more of the following individuals: ­ the spouse of the deceased immediately before their death; or ­ 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 the CGT event was brought about by that person; or • your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner. Section 118-197 of the ITAA 1997 provides that surviving joint tenants are treated as if their ownership interest passed to them as the beneficiary of a deceased estate. Subsection 118-200(1) of ITAA 1997 provides that if you do not qualify for a full exemption under section 118-195 of ITAA 1997 for an inherited property, you may be entitled to a partial exemption. Your entitlement to a reduction to your capital gain from the sale of the property is based on the proportion of your total days that are main residence days. Conversely, the capital gain remains to the extent of the proportion of your total days that are non-main residence days. | Detailed Reasoning - Adjustment to the main residence exemption for income producing use: Section 118-190 of the ITAA 1997 reduces the main residence exemption if the dwelling is used for income producing purposes. Subsection 118-190(3) of the ITAA 1997 provides you ignore any use of the dwelling for the purpose of producing assessable income during any period that you have made the absence choice to the extent that any part of it was not used for that purpose just before it last ceased to be your main residence. | Detailed Reasoning - Absence from property: Section 118-145 of the ITAA 1997 provides that you can make an 'absence choice' to continue to treat a dwelling as your main residence even though you no longer live in it. Where the dwelling is used to produce income, the choice is effective for a period of up to 6 years. Where the individual has passed away, this choice can be made by the trustees of their estate. | Detailed Reasoning - Original ownership interest: The capital gain on the deceased's original 50% ownership interest is disregarded as they acquired it before 20 September 1985 and you sold the property within 2 years. | Detailed Reasoning - Surviving joint tenant ownership interest: On XX XX 20XX, the deceased received their second 50% interest in the property through right of survivorship. The deceased moved into a retirement village from XX 20XX until their death. From XX XX 20XX to XX XX 20XX, the property was used for income producing purposes. You made the absence choice to continue treating the property as the deceased's main residence for the period XX XX 20XX to XX XX 20XX. The maximum period allowed being 6 years. Therefore, you can ignore any use of the property for the purpose of producing assessable income during this 6 year period. As such, you are entitled to a partial main residence exemption calculated under section 118-200 of the ITAA 1997 and adjusted by section 118-190 of the ITAA 1997 for income producing use. Capital gain (CG) × adjustment for period available for rent minus the first 6 years used to produce income × 50% ownership interest equals net capital gain (NCG): > Therefore, CGT will be payable for the period from XX XX 20XX to XX XX 20XX for 50% of the share that the deceased received through right of survivorship. You are also entitled to the 50% CGT discount on the sale of the property.