Private ruling: Capital gains tax - disposal of interest in deceased's main residence
Published: February 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1:  | A1: 

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Your parent acquired a property (the property) prior to 20 September 1985. Your parent moved in and established the property as their main residence and they continued to reside there until their death in the early 1990's. At the time of your parent's death your sibling (sibling A) resided at the property as their main residence. The property was valued at the time of your parent's death. You and your siblings (sibling A and sibling B) are the beneficiaries under your parent's will, with each to receive an equal share of your parent's estate. Attached the your parent's will was a hand written letter asking you and siblings to allow sibling A to continue to reside in the property as long as they wished. You and sibling B agreed to allow sibling A to continue to reside in the property indefinitely. Sibling A is currently residing at the property. Sibling A has not paid any rent since your parent's death. Sibling A has been responsible for all on going expenses in relation the property. Over the years your health has deteriorated. You are a recipient of benefits and your share of the property is assessed under the assets test which has reduced your pension. Two years ago you approached sibling A to pay you your share of the property to enable you to have sufficient funds for your future medical treatment and care. At this time a developer had agreed to purchase the property and construct a new dwelling for sibling A. The disposal of the property would free up funds to pay out sibling B, you and assist sibling A to purchase their new home. The developer did not proceed with this development due not being able to obtain council approval. Late last year sibling A agreed to purchase you and sibling B's interests in the property for a specified sum each. Sibling A valued the property at $X. Late last year, you accepted sibling A's offer. Settlement occurred late last year. You have provided a copy of the following documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling: o hand written letter from your parent o last will and testament of your parent o correspondence from a valuer in relation to your parent's assets o Memorandum of Transfer o Agreement for the sale and purchase of land o extract taken from Master Financial Planning Guide - 18-650 Dwellings, and o extract from the Guide to capital gains tax 2010-11 (NAT 4151-6.2011) - Main residence and inherited main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 116-30

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. Capital gains tax (CGT) is the tax you pay when a CGT event happens to a CGT asset, such as a dwelling. The most common CGT event (CGT event A1) occurs when you dispose of a CGT asset to another entity. CGT event A1 occurred when you disposed of your interest in the property. | Detailed Reasoning - Deceased estate: Generally, assets inherited through a deceased estate are acquired on the date of death. In your case, you are taken to have acquired your interest in the property on your parent's date of death. If you acquire an interest in a dwelling the deceased had owned, there are special rules for calculating your cost base. The first element of the cost base and reduced cost base of the dwelling is its market value at the date of death where: · the deceased acquired their ownership interest before 20 September 1985 · A capital gain or capital loss can be disregarded when a CGT event happens to an ownership interest in a dwelling owned by the trustee or beneficiary if any of the following applies: · it was the deceased's main residence just before their death and was not being used at that date to produce assessable income, or · the deceased acquired their ownership interest before 20 September 1985 AND · you dispose of your ownership in the property within two years of the deceased's death, or · during your ownership period it was the main residence of one or more of the following: · the main residence of the spouse of the deceased · an individual who had a 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 passes as a beneficiary that individual. An individual would be considered to occupy a dwelling under the deceased's will if it was in accordance with the terms of the will. In your case, sibling A resided in the property and did so because you and sibling B allowed them to reside in it. Under the terms of your parent's will no individual was granted the right to occupy the property. The hand written letter attached to their will does not form part of your parent's will and is considered to be a letter written to their children expressing their wishes. Therefore, you cannot disregard the capital gain made on the disposal of your interest in the property Avenue as none of the above conditions have been met. Whilst we appreciate your situation the Commissioner does not currently have any discretionary powers to extend this period beyond the two year period.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Capital gains tax - disposal of interest in deceased's main residence: Question: Can you disregard the capital gain made on the disposal of your interest in the deceased's main residence?