Issue
Will the trustee of a deceased estate be entitled to a full main residence exemption under section 118-210 of the Income Tax Assessment Act 1997 (ITAA 1997) on the disposal of a dwelling that, in accordance with the deceased's will, was acquired for occupation by an individual?
Decision
No. As the dwelling was not the main residence of the individual named in the deceased's will for the entire period of ownership, the trustee will only be entitled to a partial exemption. Any capital gain or capital loss made will be determined having regard to the number of days that the dwelling was not the individual's main residence.
Facts
The deceased passed away after 20 September 1985. The deceased had an adult child who was mentally incapacitated.
The deceased's will provided that, if the child survived the deceased, the child should be permitted to live in the deceased's home or alternatively the deceased's home could be sold and another residence purchased for the child to live in. On the death of the child, the residence was to be sold and any proceeds divided equally between certain surviving beneficiaries.
The trustees of the deceased's estate sold the deceased's home and purchased a unit for the child to reside in. The child resided in the unit until their death. The trustees subsequently sold the unit.
Reasons for Decision
Section 118-210 of the ITAA 1997 is applicable in this case as the trustees of the deceased's estate acquired an ownership interest in a dwelling for occupation by the deceased's child, in accordance with the deceased's will.
Subsection 118-210(3) of the ITAA 1997 provides that if you receive money or property for a CGT event happening to such a dwelling the trustee does not make a capital gain or capital loss if the dwelling was the main residence of the individual from the time the trustee acquired an ownership interest in it until the time of the event. For the purposes of the provision only those CGT events listed in subsection 118-210 of the ITAA 1997 are relevant.
Subsection 118-210(4) of the ITAA 1997 provides that if the dwelling was the main residence of the individual during part only of that period, the trustee makes a capital gain or capital loss worked out using the formula: Capital gain or capital loss amount x Non-main residence days/ Days in that period
The non-main residence days in this formula are the number of days in the period referred to in subsection 118-210(3) of the ITAA 1997 when the dwelling was not the individual's main residence.
In this case: • the trustee's ownership period of the dwelling commenced on the date the purchase contract was settled (see section 118-130 of the ITAA 1997); • the dwelling was the main residence of the child from the settlement date of the purchase contract until the date of the child's death; • CGT event A1 (a listed event) happened when the trustee entered into the contract to dispose of the dwelling; and • the trustee received money for the CGT event.
The trustee will therefore be entitled to a partial main residence exemption. The trustee will be required to calculate any capital gain or capital loss they make on the disposal of the dwelling having regard to the number of days that the dwelling was not the child's main residence (that is, from the date of the child's death until the time the CGT event happened to the dwelling).