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Edited version of your written advice
Authorisation Number: 5010046973360
Date of advice: 13 December 2017
Ruling
Subject: Capital Gains Tax – 2 Year Discretion
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?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
The deceased owned a dwelling.
The dwelling was the main residence of the deceased.
The deceased moved into a nursing home.
The deceased relative lived in the residence for a period of time rent free.
The dwelling was rented for a period of time.
The deceased continued to treat the dwelling as their main residence during their absence.
The deceased passed away.
A caveat was placed on the dwelling by the children of the deceased
A dispute occurred between the deceased’s children
Probate was granted to the Executor
The family dispute was resolved and the caveat was removed
The dwelling was advertised for sale
A contract for the sale of the dwelling was executed.
Settlement for the dwelling occurred.
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
Reasons for Decision
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 to the two year period.
Detailed reasoning
Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a full CGT exemption for capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied.
A full exemption is available if the dwelling was acquired by the deceased person after 19 September 1985, the dwelling was the deceased's main residence just before the deceased's death, it was not being used to produce assessable income at that time and the individual disposed of the dwelling (e.g. by sale) within two years of the deceased's death, or within a longer period allowed by the Commissioner.
The Commissioner has discretion to extend the two-year time period in relation to CGT events that happened in the 2008/09 income year and later income years. The explanatory memorandum (EM) to the Bill that added the discretion to Section 118-195 of the ITAA 1997, the Tax Laws Amendment (2011 Measures No 9) Bill 2011, includes the following 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 (e.g. 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 this case, it is acknowledged that the property was not disposed of within 2 years of the deceased’s passing due to a caveat that was placed on the property resulting in a family dispute. However in this case, the 2 year period has only been exceeded by a short period of time.
The Commissioner considers it appropriate to exercise his discretion to extend the 2 year period for the exemption from CGT.
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