Taxation Law Assignment: CGT and Main Residence Exemption Analysis

This case study analyzes the capital gains tax (CGT) implications of inherited property in the context of Australian taxation law. The assignment examines a scenario involving Bob Wilson, who passed away leaving his family home to his children, Amy and Joe. The analysis focuses on whether the beneficiaries are liable for CGT upon selling the inherited property, considering the main residence exemption under section 118-195 of the ITAA 1997. The case explores the pre-CGT status of the property, the beneficiaries' use of the property, and the timing of the sale. The study delves into the relevant sections of the Income Tax Assessment Act 1997, including Division 128 and section 118-195, to determine the applicability of CGT exemptions. The conclusion provides guidance on the tax liabilities of Joe and Amy, considering their specific circumstances and the fulfillment of the criteria for the main residence exemption.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to question 2:...................................................................................................2
Introduction:..............................................................................................................2
Issues:.......................................................................................................................2
Rule:..........................................................................................................................2
Application:................................................................................................................4
Conclusion:...............................................................................................................7
References:..................................................................................................................8

2TAXATION LAW
Answer to question 2:
Introduction:
Issues:
1.1. Whether the taxpayer will be considered liable to pay duty on capital gains
initiating out of CGT events from main residence inherited from the deceased
within “sec 118-195, ITAA 1997”?
1.2. Whether the property formed the post-CGT asset of demised taxpayer?
1.3. Was the possessions treated as the central home of residence of the
departed taxpayer before his death?
1.4. Was the property assimilated by taxpayer as the estate of departed?
1.5. Was the taxpayer living in the possessions from the time of death to the date
of sale?
Rule:
Under the “section 118-110 (1), ITAA 1997” there are basic main residence
exemption that are applied on the taxpayer all through their entire time of tenure
(Woellner et al., 2016). Capital gains or loss that takes place to a home which forms
the main home of the taxpayer is simply ignored from tax provided that;
a. If the assesse is a person
b. The home formed the chief house of residence for the assesse all through the
entire period they owned
c. The house ownership was not given to the assesse as beneficiary of the
departed estate.
The taxpayer must denote that a full main dwelling exception would not be
permitted to the taxpayer if the apartment was the main house of residence for the
taxpayer all through their part of the possession period or it was put in to usage by
the assesse for creating assessable revenues (Barkoczy, 2016). Accordingly,
“Division 128, ITAA 1997” is mainly associated with the CGT concerns on the
event of demise. According to “sec 128-10” the death of the taxpayer cannot be
viewed as disposal of the asset by the late taxpayer. As a result, no CGT
consequences happens. “Sec 128-15” provides explanation that assets are
acquired by the beneficiary for the purpose of CGT on the date of the death.

3TAXATION LAW
As given “sec 128-10, ITAA 1997” when the taxpayer deceases, a CGT
occurrence related to the CGT asset is merely overlooked (Sadiq, 2019). On the
event of the passing of the assesse, the receiver or the successor is considered to
have the ownership of asset when the taxpayer’s passed away. On seeing that the
asset is the Pre-CGT asset of a late assesse, the recipient will be assumed to hold
the asset in respect of the present-day marketplace value just when the taxpayer
passes away.
Under the “sec 128-15, ITAA 1997” when the asset turns into a post-CGT
asset of the departed taxpayer, the recipient in this situation is deemed to take the
asset on the day when the taxpayer died in respect of cost base of departed assesse
(Morgan et al., 2018). If the inherited asset results in chief house of the departed
assesse and on no occasion used for making revenue, then the beneficiary will be
inheriting the assets on the cost base that would be representing the marketplace
value on the time of passing away (Bankman et al., 2018). If the house formed the
chief abode of the departed assesse and on no occasion used in creation of
revenue, under “sec 118-195, ITAA 1997” the beneficiary might receive the chief
home exception on filling the eligibility criteria.
“Sec 118-195” is associated with the dwelling that are attained as of the estate
of departed assesse (Morgan & Castelyn, 2018). As per the “sec 118-195, ITAA
1997” a capital gains or loss is made by a person from the CGT event which takes in
the regard to the house or the ownership interest of the taxpayer is ignored given
that the assesse is a separate person and interest in asset is given as lawful
recipient in the deceased estate or the taxpayer owned as the representative of the
will of departed assesse (Oishi et al., 2018). Under the “sec 118-195, ITAA 1997”,
as the beneficiary a person is allowed to disregard the capital gains and loss in
regard to the earlier house of the departed assesse if anyone is fulfilled;
a. A person disposes the interest of title in the property within 2 years from the
departure of assesse or within the lengthier period as deemed appropriate by
the official; or
b. If they do not sell the interest of title in the asset within 2 years from the
departure of assesse, the dwelling was from the time death of the departed
assesse till the conclusion of possession formed the main house of residence

4TAXATION LAW
of the late wife during the period of demise or the individual that had the right
of inhabiting the house based on departed assesse will; or
c. The person that receives it as the beneficiary of the estate
A capital gains or loss from the CGT event that happening regarding
residence under the certain circumstances is simply disregarded if it is noted that the
taxpayer is the resident and the interest of ownership has been handed to the
assesse as the receiver or the assesse has retained as the executor of the departed
estate under “sec 118-195, ITAA 1997” (Murray et al., 2018). On noticing that the
asset was the pre-CGT for deceased and the legal heir has sold it inside the span of
two years following the demise of the deceased or any long time if the discretion of
the official has been implemented, the taxpayer gets full exemption under “sec 118-
195, ITAA 1997”.
If the pre-CGT asset has not been sold inside the mandatory time period, the
complete exception is yet accessible under “sec 118-195, ITAA 1997”, if after the
day of demies till the day when the ownership concludes it was the main house of
the late wife or the main residence was bought by the person to whom the asset is
given as legal receiver.
As per the “TD 1999/70” where it is noticed that the residence is a post-CGT
asset for departed taxpayer the identical circumstances for the pre-CGT should be
fulfilled (Main, 2019). However, the house should have also be the central home of
the departed assesse prior to the passing away and it has not been used for making
revenue during that time. As per this, when it is noticed that full main exemption from
the CGT is not available under “sec 118-95”, then a part exemption may still be
available under “sec 118-200, ITAA 1997” (Murray et al., 2018). The capital gains
and loss is appropriately dispensed by determining the total days as the non-main
residence in contrast to the possession times which is relevant for the exemption of
main residence. On noticing that capital gains is not applied and the asset was
owned for 12 months or more, CGT discount must be accessible under the
“Division 115, ITAA 1997”.
Application:
Client Joe and Amy:

5TAXATION LAW
The facts that are found from the case study suggest that Bob Wilson being
an Australian inhabitant has died on 23rd May in 2015 leaving behind his two children
named Amy and Joe. The deceased taxpayer here Bob only owned a family home
that he had actually bought for $110,000 with his deceased wife Kath during January
1982. On the day of death of Bob the valuation that was obtained for the property
was worth around $560,000.
Straight from the year 1982, when the property was bought by Bob till the day
when he died, it formed the main house of residence until Joe began living in the
house as the caretaker from April 2006. The solicitor here provides an advice to Joe
and Amy that the will of his late father has been distributed in equivalent shares and
both Joe and Amy will be equally sharing the house between them. The case facts
later develops where Amy is seen selling her part of shares in the will. As Joe had no
adequate volume of money to purchase the Amy’s shares, Joe left with no option
decided to sell his share of will as well upon receiving an offer of $680,000.
In regard to the case facts that is obtained it is very much understood that the
dwelling which was acquired by Bob is a pre-CGT asset from the time when it was
bought before 19th September 1985. The home from the time of Bob possession till
the time of his departure formed the main house of abode and he did not let out for
making income. Neither did Joe nor Amy used the property following the demise of
Bob for generating any income.
Citing the reference that is made under the “section 128-15, ITAA 1997” the
beneficiaries Joe and Amy is assumed to have acquired the property just on the day
of Bob’s death in respect of the cost base of deceased (Evans et al., 2015). In
addition to this, the asset was completely used as main house of residence of Bob
and did not used the house for producing proceeds, the cost base of the house to
the beneficiaries Amy and Joe whom the possessions is given as the likely hires
represent the current marketplace worth on the day of demise.
The examination contributes to the fact that the CGT asset constituted the
main home of the receivers as well after the demise of the dead. The CGT asset was
at no time utilized for making assessable earnings and as result the beneficiaries
here Joe can get the main residence exemption from the CGT in respect of the
conditions given in “sec 118-195, ITAA 1997”. Whereas, it is seen that Amy was not

6TAXATION LAW
dwelling on that property and it never formed her main residence. While the sale of
house has led to the “CGT event A1” under “sec 104-10 (1), ITAA 1997” for both
Joe and Amy.
The deceased here Bob in the current case study purchased the ownership
interest in the property before 20th September 1985 and used it as the main dwelling
from the time till of his first ownership day till the day of his demise or till the time
when the ownership came to an end (Davidson & Evans, 2015). The rightful owners
here Joe and Amy acquired the interest of ownership in the house on the basis of the
deceased will which directed an equal share among both the siblings.
Citing the law above for a complete main home to apply under the “sec 118-
195, ITAA 1997”, the taxpayers here, Joe and Amy would either have to
a. Sell the main house of home inside the time span of two years of Bob death’s
or for the long period of time as required by the commissioner under his
discretion; or
b. The main house of residence from the time of passing away till the time of
transaction it should be the central house of either the spouse of the dead or
the persons that has the right of residing in the abode in respect of the will of
deceased, or any kind of CGT event was bought about by a person to whom
the interest of ownership of the property has been handed as the legal
receiver.
As understood from the analysis of the facts obtained from the question that
the main house of residence subsequent to the departure of the deceased was not
sold inside the time span of two years from the day of death (Hulse & Burke, 2016).
As a result their first option (a) is not appropriate in case of Joe and Amy. On the
other hand, since the main house of residence formed the main residence of Joe
from the day of death of Bob till the time of the transaction and both being the
individual to whom the interest of ownership of the main residence has been handed
as the receiver. The CGT event was also brought by both Joe and Amy, therefore
option (b) is valid in this case. Under “sec 118-195, ITAA 1997”, a full main house
exception from the capital gains tax is available to Joe under the “sec 118-195”.
However, Amy was not living on the property ever since the demise of her father.
The property cannot be viewd as her main residence. Therefore, in the event of the

7TAXATION LAW
capital gains tax that is earned by Amy from the sale of house, she will be required to
pay capital gains tax on her part of share.
Conclusion:
On the basis of the facts that are applied above on the relevant conditions of
Joe will be allowed to full main dwelling exception from CGT under “sec 118-195,
ITAA 1997”. While Amy will not be allowed to any main residence exemption since
the property was not her main dwelling. The capital gains that is earned from the
transaction of house will attract tax liability for Amy and she will have to pay tax on
her capital gains. Even though the income is exempted from capital gains tax, Joe
will have to declare the income while filing tax return. While for Amy, the net capital
gains will be counted in her assessable under “sec 102-5, ITAA 1997”.

8TAXATION LAW
References:
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018). Federal Income
Taxation. Aspen Publishers.
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Davidson, P., & Evans, R. (2015). Fuel on the fire: Negative gearing, capital gains
tax & housing affordability. ACOSS Papers, 29.
Evans, C., Minas, J., & Lim, Y. (2015). Taxing personal capital gains in Australia: An
alternative way forward. Austl. Tax F., 30, 735.
Hulse, K., & Burke, T. (2016). Private rental housing in Australia: political inertia and
market change. Housing in 21st-century Australia: People, practices and
policies, 139-152.
Main, J. (2019). Taxation: Buying or selling: beware the sting of GST. LSJ: Law
Society of NSW Journal, (55), 73.
Morgan, A., & Castelyn, D. (2018). Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian
taxation law 2018. Oxford University Press.
Murray, I., Taylor, J., Walpole, M., Burton, M., & Ciro, T. (2018). Understanding
Taxation Law 2019.
Oishi, S., Kushlev, K., & Schimmack, U. (2018). Progressive taxation, income
inequality, and happiness. American Psychologist, 73(2), 157.
Sadiq, K. (2019). Australian Taxation Law Cases 2019. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian
Taxation Law 2016. OUP Catalogue.