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Edited version of your private ruling
Authorisation Number: 1012568181004
Ruling
Subject: CGT main residence
Question
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 to 20 December 2012?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
The property formed part the deceased's estate.
The deceased acquired the property prior to 20 September 1985. The property was used to derive rental income.
You and another beneficiary of the estate challenged the will of the deceased.
You resolved the dispute with the other beneficiaries via a Deed of Settlement.
As per the terms of the will and the Deed of Settlement, following the grant of probate, the property was transferred to you and another beneficiary as tenants in common in equal shares.
The property was listed for sale continuously with only one offer ever being received. This offer was negotiated and accepted via contract. Settlement occurred during the relevant financial year.
The property had continued to be rented following the deceased's death with receipts payable to the estate. Following probate you and another beneficiary continued to derive rental income from the property up until the date of sale.
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, after a legal dispute regarding the terms of the deceased's will an interest in the property passed to you as a beneficiary of the deceased's estate. The property was originally acquired by the deceased prior to 20 September 1985.
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 deceased's will was challenged causing a delay in probate being granted. Although the property was used to produce income, it was listed for sale soon after probate was granted. The property was on the market for a considerable amount of time before any offer was received. The property was sold less than two years after probate was granted.
Having considered the relevant facts, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.
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