Issue
Can the taxpayer, the trustee of a deceased estate, disregard the capital gain from the sale of the deceased's main residence under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in the circumstances of this case?
Decision
No. The taxpayer cannot disregard the capital gain from the sale of the deceased's residence under subsection 118-195(1) of the ITAA 1997.
Facts
The deceased person acquired the dwelling after 20 September 1985. The deceased person's death occurred after 20 August 1996. The dwelling was their main residence at the time of death. The dwelling was not then being used for income producing purposes.
The ownership of the dwelling passed to the taxpayer as the deceased's executor. Under the deceased person's will, the deceased's residuary estate was to benefit five individuals. The dwelling formed part of the residuary estate.
The executor and the beneficiaries agreed that until the dwelling was sold it could be occupied by one of the beneficiaries.
The dwelling was sold more than 2 years after the deceased's death.
Reasons for Decision
The deceased person's legal personal representative is taken to have acquired the dwelling for its market value at the date of death - see item 3 in the table in subsection 128-15(4) of the ITAA 1997.
Any capital gain or loss that arises subsequently may be disregarded if section 118-195 of the ITAA 1997 is satisfied.
Subsection 118-195(1) of the ITAA 1997 disregards a capital gain or loss from a CGT event that happens to a dwelling owned by a taxpayer as a trustee of a deceased estate, if: • the taxpayer's ownership interest ends after 20 August 1996 and within 2 years of the person's death or • from the deceased's death until the taxpayer's ownership interests ends, the dwelling was not used to gain or produce income and it was also the main residence of one or more of: • the spouse of the deceased immediately before death, • an individual who had a right to occupy the dwelling under the deceased's will.
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. This would also be the case if it was in pursuance of the will or under the authority of the will (see Evans v. Friemann (1981) 53 FLR 229 at 238).
In this case, the beneficiary had no right under the will to reside in the house. The beneficiary resided in the house because the executors and other beneficiaries so agreed.
This outcome is consistent with the general rule of construction that the intent of the deceased must be ascertained from the words of the will and that one cannot speculate or guess after that intention. (see Certoma, GL 1987, The Law of Succession in New South Wales , The Law Book Company, Sydney, p. 117.)
As the beneficiary did not have a right to occupy the dwelling under the will, the trustee cannot disregard the capital gain made on the disposal of the dwelling.
Amendment History
Date of Amendment Part Comment 27 May 2016 Facts Amendments to clarify content and correct grammatical errors Decision Amendment to correct grammatical error Other references Amendment to correct citation
Date of Amendment | Part | Comment
27 May 2016 | Facts | Amendments to clarify content and correct grammatical errors
Decision | Amendment to correct grammatical error
Other references | Amendment to correct citation