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Ruling
Subject: Deceased estate - CGT main residence exemption
Question 1
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period?
Answer
Yes
Question 2
Can you disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
The deceased died during the relevant income year.
You were appointed as executor of the deceased's will and trustee of the estate.
The three beneficiaries under the will were Beneficiary A, Beneficiary B and Beneficiary C.
One of the main assets of the estate was a house (the property). This was the principal residence of the deceased up to the date of their death.
The deceased acquired the property prior to 20 September 1985 jointly with their spouse. The deceased's spouse passed away after 20 September 1985 at which point their share in the property passed to the deceased.
The property has never been used to produce assessable income.
At the time of the deceased's death, Beneficiary B and Beneficiary C were residing at the property.
You sought instructions from the beneficiaries in regards to the sale or transfer of the property.
A representative of Beneficiary A advised that they was not in a position to take transfer of the property and authorised you to arrange the sale of the property.
Beneficiary B and Beneficiary C refrained from providing you with their instructions.
After a period of time, Beneficiary B provided instructions authorising the sale of the property, but requesting financial assistance to vacate the property. Some time later, Beneficiary C requested additional time to vacate the property.
You provided financial assistance to both Beneficiary B and Beneficiary C to assist them in seeking alternative accommodation.
After numerous unsuccessful attempts to vacate the property, you engaged legal services to proceed with legal action to obtain vacant possession of the property. However, Beneficiary B and Beneficiary C moved out before such legal action was required.
A contract for the sale of the property was signed and settlement occurred during the subsequent income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
........... | |||
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case, when the deceased died the property passed to the legal personal representative. The property was not used to produce assessable income and it was their main residence just before their death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:
· the ownership of a dwelling or a will is challenged,
· the complexity of a deceased estate delays the completion of administration of the estate,
· a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two year period (eg the taxpayer or a family member has a severe illness or injury), or
· settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for reasons outside the beneficiary or trustee's control.
In determining whether or not to grant an extension the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.
In this case, the delay caused by the beneficiaries in vacating the property was outside the trustee's control. This prevented the trustee from disposing of the property within the two year time limit. The property was never used to produce assessable income and was held by the trustee for just over two years.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.
As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.
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