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Edited version of your written advice
Authorisation Number: 1051215614455
Date of advice: 26 April 2017
Ruling
Subject: Deceased estate exemption for Capital Gains Tax
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 period:
Period ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
A person passed away.
The property was their main residence.
The property was jointly acquired.
The individual became the sole registered proprietor.
The property has been vacant.
Probate was obtained.
Initially a claim had been made against the estate by residuary beneficiary, which was extinguished the executor could then deal with the estate assets.
The executor then listed the deceased property with the local real estate agent. From that time the executor maintained the property in good state of repair, carrying out all maintenance required and that all outgoings on the property.
The reason for the delay in selling the property was that with the large number of units opening in the area with a number of couples occupying those units and of which the deceased also occupied one of those units, it meant that there was a flood of previously owned homes in the area and the local real estate market became flooded with the sale of those homes. With the impact on the market it has meant sales of such homes have slowed considerably and prices have been driven down which made it very difficult to obtain a reasonable price for the sale of the property and it was not until a period of time that a contract of sale was entered into with a settlement occurring.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 subsection 118-130(3)
Income Tax Assessment Act 1997 section 118-195
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
Question 1
Summary
The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time.
Detailed reasoning
Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if:
● the property was acquired by the deceased before 20 September 1985, or
● the property was acquired by the deceased 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, and
● your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
In this case, the deceased acquired a 50% interest in the property before 20 September 1985 and the remaining 50% interest was acquired after 20 September 1985 and the property was their main residence until they passed away. The property was not sold within 2 years of the deceased's date of death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the 2 year time period.
The Commissioner can exercise his discretion 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
Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time.
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