Private ruling: Capital gains tax – deceased estate –- main residence exemption
Date of advice: 17 May 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Will the capital gain you make on the disposal of the dwelling be disregarded? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling sometime before 20 September 1985. The land on which the dwelling is situated is approximately 10,000 square metres. The dwelling was the deceased’s main residence. The deceased moved into assisted care and made the absence choice to continue to treat the dwelling as his main residence. The deceased died shortly after the move into assisted care. Probate was granted a few months later. Two of the deceased’s relatives are the executors under the Will. The dwelling will be held by the two relatives as trustees of the Testamentary Trust (you) as a result of the deceased’s will. The primary beneficiaries of the trust are also the deceased’s two relatives. One relative has lived in the dwelling for a number of years. The relative will continue to live in the dwelling as their main residence for the period of this ruling. The relative has a right to reside in the dwelling under the will of the deceased. The dwelling will be sold within the period of this ruling and a capital gain will be made.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1) | Income Tax Assessment Act 1997 subsection 128-15(3)

Reasons for decision: Summary: In certain circumstances, section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if: ● you are an individual and the interest passed to you as a beneficiary in a deceased estate, or ● you owned it as the trustee of a deceased estate. The Commissioner’s longstanding administrative practice is to treat the trustee of a testamentary trust in the same way as a legal person representative for the purposes of Division 128 of the ITAA 1997, in particular 128-15 (3), so that any capital gain or loss the trustee of a testamentary trust makes if the asset passes to a beneficiary in the deceased estate is disregarded. The words ‘trustee of a deceased estate’ as used in section 118-195 of the ITAA 1997 are not limited to a legal person representative but include the trustee of a testamentary trust. In relation to dwellings acquired by a deceased person before 20 September 1985, and who passed away after that date, for the exemption to apply under section 118-195 of the ITAA 1997 the dwelling must: ● be disposed of by the trustee or the beneficiaries within two years of the date of death, or ● from the deceased death until your ownership interest ends, be the main residence of one or more of: ● the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or ● an individual who had the right to occupy the dwelling under the deceased’s will; or ● if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary – that individual. | Detailed Reasoning - Application to your situation: The capital gain you will make from the sale of the property will be disregarded because the sale meets all of the following conditions: ● There will be a dwelling on the property when you sell it ● The property is less than two hectares in size ● You became the owners of the property as legal personal representatives of the deceased ● The deceased acquired the property before 20 September 1985 ● From the date of death of the deceased until the property is sold, the dwelling on it will be the main residence of a person who was given the right to reside there by the will of the deceased. | Detailed Reasoning - Further information to consider: The same exemption would apply if the ownership interest passed to an individual under the will, and from the deceased’s death until the property is sold, the dwelling is the main residence of a person who was given the right to reside there by the will.