1 Will the surrender of your life interest in the Estate of your late spouse result in any ordinary assessable income?
No. Question 2 Will a capital gain tax (CGT) event A1 occur on the surrender of your life interest? Answer Yes. Question 3 Will any capital gain or capital loss on your life interest in your main residence up to two hectares be disregarded under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? Answer Yes. Question 4 Is the first element of the cost base and reduced cost base of your life interest the market value on the date of death of your spouse? Answer Yes. Question 5 Will the capital proceeds from the CGT event be the market value at the time it is surrendered? Answer Yes. This ruling applies for the following periods Year ending 30 June 2022 Year ending 30 June 2023 The scheme commenced on 1 July 2021
You were married to your spouse (the testator) who died many years ago. You and the testator owned as tenants in common property 1. You and the testator also owned property 2. On property 2 was the main residence of you and the testator. This property is over 2 hectares. You still live in this residence. Property 1 and property 2 were acquired before 20 September 1985. The testator left a life interest in both of the above properties to you. This life interest has continued until the present day. You, as life tenant, have allowed your child and associate to carry on the business on both properties when you retired. Since your retirement, your interest in the properties is the maintaining of your main residence and the payment of rates and taxes of both properties. You are now wishing to surrender your life interest to speed up the terms of the will at which point the testator's interest in property 1 and property 2 will pass to the remainder. A rollover under subdivision 124-J of the ITAA 1997 applied when the Crown lease on the land was converted to a freehold title.
Income Tax Assessment Act 1997 Section 6-5 Income Tax Assessment Act 1997 Section 102-20 Income Tax Assessment Act 1997 Section 104-10 Income Tax Assessment Act 1997 Section 108-5 Income Tax Assessment Act 1997 Section 112-20 Income Tax Assessment Act 1997 Section 116-30 Income Tax Assessment Act 1997 Section 118-130 Income Tax Assessment Act 1997 Section 118-195 Income Tax Assessment Act 1997 Section 128-15 Detailed reasoning Ordinary income Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Ordinary income has generally been held to include three categories, namely, income from