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Edited version of your written advice
Authorisation Number: 1013067352035
Date of advice: 5 August 2016
Ruling
Subject: CGT - Deceased Estate - Main Residence Exemption – Commissioner’s Discretion
Question
Will the Commissioner exercise his discretion to extend the time period in subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the trustee or beneficiary of a deceased estate’s ownership interest ends after two years from the deceased’s death until settlement?
Answer
Yes
This ruling applies for the following period:
Period ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
Your relative passed away on a date in 201X. You inherited their apartment. The unit was a pre-CGT asset and also their main residence.
The will was executed and you received title to the property on a date in 201X.
The unit was rented from a date in 201X till a date in 201Y.
You took steps to list the property for sale on a date in 201Y, with an intended auction date in 201Y.
During renovations in 201Y it became apparent that there was concrete spalling in the common strata property of the unit block that would need to be rectified before the repairs could be completed and the unit sold. The timetable for repairs to the common property was in the hands of the body corporate and outside your control.
Due to delays the Body Corporate did not see works commence until a date in 201Z. The rectification work was completed by a date in 201Z.
Following the rectification work to the joint property you completed the necessary renovations to the unit by the end of a date in 201Z.
The property was relisted for sale on a date in 201Z and contracts for sale exchanged on a date in 201Z. Settlement occurred on a date in 201Z.
Relevant legislative provisions
Subdivision 115-A of the Income Tax Assessment Act 1997
Section 118-195 of the Income Tax Assessment Act 1997
Section 118-200 of the Income Tax Assessment Act 1997
Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)
Reasons for decision
Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person acquired after 20 September 1985 if:
● the dwelling was a pre-CGT asset at the time of the deceased's death; and
● your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner.
In your case, the dwelling was a pre CGT asset as well as your relative’s main residence just before their death. Although your ownership interest in the dwelling did not end within two years after the date of your relative’s death, in view of your particular circumstances the Commissioner will exercise his discretion to extend the two year exemption period until 30 June 2016. The sale of the property will therefore not be subject to CGT.
The Explanatory Memorandum for the Tax Laws Amendment (2011 Measures No. 9) Act 2012 explains the Commissioner would be expected to exercise discretion (in sections 118-195 and 118-200) in situations such as where:
● 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 (for example, 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 circumstances outside the beneficiary or trustee's control.
These examples are not exhaustive.
In exercising this discretion, the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling.
Application of Commissioner’s discretion in your case
In your case, following the guidance in the Explanatory Memorandum, the Commissioner will exercise his discretion under section 185-195 of the ITAA 1997 on the grounds that you made a reasonable attempt to sell the unit well within the two year period but unforseen necessary repairs to the common property of the unit block that were outside your control delayed the sale of the unit until after the end of this period. When the necessary repairs were complete, you acted with haste to sell the property as soon as possible. The allowed two years was only exceeded by a short period.
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