Individuals who have inherited land or a house and retained it for 10 years are able to make downsizer contributions from the proceeds of its sale, even if changes have been made to the underlying asset, the ATO has confirmed in a recent private ruling.
The regulator stated in a private ruling made on 2 February that the date of the person’s death will be regarded as the acquisition date of the property for their beneficiaries when meeting requirements to hold it as a main residence for 10 years before making a downsizer contribution.
Under the case before the ATO, rural land that was passed to beneficiaries of a deceased individual was subdivided among them and at a later date the main residence of the applicant was constructed and then occupied continuously until both the land and dwelling were sold.
In making its ruling, the ATO noted Law Companion Ruling 2018/9, which covers the operation of the downsizer contribution rules in the Income Tax Assessment Act (ITAA) 1997, stated an eligible contribution could be made if an ownership interest in a dwelling or the land on which it is situated was held at all times during the 10 years prior to the disposal.
“[The] ownership period is calculated from the day the ownership interest in the dwelling commenced to the day it ceased,” the ruling stated.
“Subsection 118-130(1) of the ITAA 1997 provides that a person has an ownership interest in land or a dwelling if they have a legal or equitable interest in it or a right to occupy it.”
The ruling also noted section 128-15(2) of the ITAA 1997 stated a legal personal representative or beneficiary was taken to have acquired an asset on the day the deceased died.
As such, in this case the applicant’s spouse satisfied the 10-year ownership test having been the beneficiary of a deceased estate more than 10 years ago.
Additionally, the ruling stated the subdivision of the land did not change that fact.
“Subdividing land does not necessarily give rise to a capital gains tax event, it merely splits the interest into separate assets in their own right,” the ruling added.
“An ownership interest in the land on which the dwelling is situated is treated as being held from the time that the ownership interest in the original parcel was first held.
“The subdivision of the land did not constitute a new acquisition as each subdivided lot retains the original acquisition date.”
