Edited version of private advice

Authorisation Number: 1052052599329

Date of advice: 1 November 2022

Ruling

Subject: CGT - extensions to the 2-year ownership period

Question 1

Will the commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year capital gains tax (CGT) exemption to dispose of the property?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

The deceased passed away on DD MM YYYY.

The deceased purchased a house in YYYY.

This property was their main residence for the whole of their ownership period.

The deceased moved out of the property in MM YYYY and into care.

The property was never used to produce income.

The property was less than 2 hectares.

Probate was granted on DD MM YYYY.

The deceased's family member moved into the property after the deceased moved out and lived in the property rent free.

The deceased authorised for the family member and their family to move into the property prior to their death rent free.

The family member remained in the property until late MM YYYY.

The family member intended to purchase a home and due to the pandemic lock downs, this was difficult.

The Executor of the estate did not want to evict the family member.

The pandemic meant that it was difficult to place the property on the market due to the lockdowns.

The property was placed on the market in MM YYYY and settled on DD MM YYYY.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

The main residence exemption in section 118-110 of the ITAA 1997 applies to disregard a capital gain or capital loss a taxpayer makes from a capital gains tax (CGT) event that happens to a dwelling that is their main residence.

If a taxpayer inherits an ownership interest, subsection 118-195(1) of the ITAA 1997 applies so that any capital gain or capital loss they make from a CGT event that happens in relation to a dwelling or their ownership interest in a dwelling is disregarded if:

• They are an individual and the interest passed to them as a beneficiary in a deceased estate, or they owned it as the trustee of a deceased estate; and
• 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; and
• Their ownership interest ends within two years of the deceased's death, or within a longer period allowed by the Commissioner

Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

• 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).
• Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

Factors that would weigh against the granting of the discretion include:

• Waiting for the property market to pick up before selling the dwelling.
• Property used to earn assessable income.
• Unexplained periods of inactivity by the executor in attending to the administration of the estate.

The above examples are not exhaustive.

In addition, once any circumstances preventing the sale of the Property have been resolved, the Property needs to be placed on the market as soon as possible to enable its disposal.

Application to your situation

The delay in selling the property was due to the executors of the estate allowing the deceased's family member to remain living in the property after the deceased's death in MM YYYY.

The family member did not have a right to live in the property under the will and this was a decision made by the executors to allow them and their family to remain in the property until late MM YYYY.

There was sufficient time from when the deceased passed away until the beginning of the pandemic for the property to be placed on the market.

We consider the delay in disposing of the Property was predominantly due to the executors allowing the family member of the deceased to remain in the property and delaying the sale of the property.

In this regard, we consider that the delay was not outside your control.

It is for the above reasons that you do not meet the requirements for the Commissioner to extend the 2-year time period as the property could have been sold at an earlier stage.

The Commissioner will not be exercising his discretion to extend the 2-year period for you to dispose of the property. Therefore, any capital gain made on the property from the date the deceased passed away until the property was disposed of will be subject to tax. You are also entitled to the 50% CGT discount in relation to the property.

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