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Ruling
Subject: Deceased Estate - Main residence - 2 year extension
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
This ruling applies for the following periods:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
The deceased died in the year ended 30 June 19XX.
Under the will, a relative of the deceased was granted a life interest to occupy the deceased's dwelling until their death. Following the relative's death in year ended 30 June 20YY, the remainder beneficiaries inherited the deceased's dwelling.
One of the main assets of the estate was the house which was the principal residence of the deceased up to the date of death.
The deceased acquired the property prior to 20 September 1985 with a family member as joint tenants. The family member passed away in the year ended 30 June 19ZZ 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, the deceased and the relative were residing at the property.
Under the terms of the will, the property was to be subdivided upon the relative's death, and distributed to the remainder beneficiaries.
Delay in distribution to the remainder beneficiaries was caused by local Council planning restrictions which prevented the property from being subdivided and distributed.
The remainder beneficiaries agreed to sell the property in the year ended 30 June 20VV.
In the year ended 30 June 20VV, real estate agents were appointed to sell the property, and an agency agreement was entered into X months later.
Settlement on the sale of the property occurred in the year ended 30 June 20WW.
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 life interest holder until their death in the year ended 30 June 20YY. The property passed to the remainder beneficiaries upon the life interest holder's death. The property was not used to produce assessable income and it was the deceased's main residence prior to death.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:
· 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 was caused by the complexity of the deceased's estate. The administration of the deceased's estate could not be finalised until the expiration of the life estate's interest, which did not occur until year ended 30 June 20YY. This prevented the trustee from disposing of the property within the two year time limit. Additionally, the property was unable to be subdivided in accordance with the terms of the will. This made distribution of the property under the will impossible, and some delay was attributed to this complexity. The property was never used to produce assessable income.
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 to the year ended 30 June 20WW.
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