Issue
Is a full main residence exemption under subsection 118-195(1) (as extended by section 118-135) of the Income Tax Assessment Act 1997 (ITAA 1997) available to the trustee of a deceased estate, where an individual who was granted, under the will, a right to occupy the deceased's dwelling, only occupied it from the time probate and administration of the estate was granted until it was sold by the trustee?
Decision
Yes. It is considered that the individual with the right to occupy the dwelling moved into the dwelling 'when it was first practicable to do so' within the meaning of section 118-135 of the ITAA 1997. Therefore, for the purposes of applying the main residence exemption in subsection 118-195(1) of the ITAA 1997, the dwelling is treated as the individual's main residence from the deceased's death until it was sold by the trustee.
Facts
The deceased acquired a dwelling prior to 20 September 1985. The deceased died in February 1992.
Under the deceased's will, a certain individual had the right to occupy the dwelling.
The individual was unable to move into the dwelling until probate and administration of the estate was granted to the trustee. The dwelling was vacant from the deceased's death until probate and the administration of the estate was granted.
The individual moved into the dwelling in September 1992 as soon as probate and administration of the estate was granted to the trustee.
The individual used the dwelling as their main residence until it was disposed of by the trustee in March 1995. The individual did not have an ownership interest in any other dwelling from the date of the deceased's death.
Reasons for Decision
Subsection 118-195(1) of the ITAA 1997 allows the trustee of a deceased estate to disregard any capital gain or loss made from a CGT event that happens in relation to a dwelling that a deceased person acquired before 20 September 1985 if: (a) the trustee's ownership interest in the dwelling ends within 2 years of the deceased's death, or (b) from the deceased's death until the trustee's ownership interest ends, the dwelling was the main residence of one or more of the following persons: (i) the spouse of the deceased immediately before death; or (ii) an individual who had a right to occupy the dwelling under the deceased's will; or (iii) an individual who brought about the CGT event and the ownership interest in the dwelling passed to that individual as beneficiary.
In this case, the trustee's ownership interest in the dwelling ended more than 2 years after the date of the deceased's death. Therefore, a full main residence exemption will only be available if the dwelling was the main residence of one of the specified individuals during the trustee's ownership period.
The individual who was granted the right to occupy the dwelling did not occupy the dwelling throughout the trustee's ownership period. The individual occupied the dwelling from the time probate and administration of the estate was granted until it was sold by the trustee. The individual was unable to occupy the dwelling from the deceased's death until probate and administration of the estate was granted.
For the purposes of determining whether the full exemption is available to the trustee under section 118-195 of the ITAA 1997, the dwelling must be the main residence of the individual who has the right to occupy it from the deceased's death until the trustee's ownership interest ends.
Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. Under section 118-135 a dwelling is treated as your main residence from when you acquired your ownership interest until it actually became your main residence provided you moved into the dwelling when it was 'first practicable' to do so after acquiring your ownership interest.
The Explanatory Memorandum to the Tax Law Improvement Bill (No.1) of 1998, which introduced the section, states that: The rewritten provision takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause.
A delay in moving into the deceased's dwelling because the individual with the right to occupy is prevented from occupying the dwelling until probate and administration of the deceased estate is granted qualifies as a 'reasonable cause'.
Accordingly, it is considered that the individual with the right to occupy the dwelling moved into the dwelling when it was 'first practicable' to do so after acquiring their ownership interest in the dwelling.
Under section 118-130 of the ITAA 1997, you acquire an ownership interest in a dwelling when you acquire the right to occupy the dwelling. In the present case, the individual with a right to occupy the dwelling under the deceased's will acquired their ownership interest in the dwelling at the time of the deceased's death.
As the individual with the right to occupy the deceased's dwelling moved into the dwelling when it was 'first practicable' to do so, the dwelling will be treated as the individual's main residence from the time of the deceased's death until its disposal by the trustee under section 118-135 of the ITAA 1997.
Accordingly, as the deceased's dwelling is treated as the individual's main residence from the time of the deceased's death until its disposal by the trustee, a full main residence exemption is available to the trustee under subsection 118-195(1) of the ITAA 1997.