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Edited version of private ruling
Authorisation Number: 1011862379874
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Ruling
Subject: Deceased estate - sale of dwelling over two years
Question:
Can the Commissioner extend the two year period to allow a full main residence exemption on the disposal of the deceased's main residence so that the two year period starts from the date the legal dispute was settled instead of the date the deceased died?
Answer:
No
This ruling applies for the following period:
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The deceased purchased a dwelling before 20 September 1985 which was used as their main residence.
The deceased died on date A.
Under the deceased's will, the dwelling was left to you and your spouse.
There was a legal dispute, contesting the will, which was initiated by a relative. The dispute was finally settled and title passed to you and your spouse on date B, over 20 months from date A.
During the period date A until date B, no-one was permitted to use the dwelling whilst it was under dispute. This was ordered by the Court.
You and your spouse have never lived in the dwelling.
Due to the long time to settle the dispute, you and your spouse have not had time to contemplate what to do whilst the dispute was in progress. You require further time to sort out what to do about the dwelling.
You plan to sell the dwelling within 12 months.
You and your spouse live in another dwelling which is your main residence. That dwelling was purchased before 20 September 1985.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 128-15.
Income Tax Assessment Act 1997 Subsection 128-15(2).
Income Tax Assessment Act 1997 Section 118-110.
Income Tax Assessment Act 1997 Section 118-195.
Income Tax Assessment Act 1997 Subsection 118-195(1).
Income Tax Assessment Act 1997 Section 118-200.
Reasons for Decision
Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) includes rules about an exemption from capital gains tax (CGT) which applies to main residences as well as specific rules applying to dwellings which a person acquires as the beneficiary of a deceased estate.
Subsection 118-195(1) of the ITAA 1997 allows a capital gain or loss to be completely disregarded when a person sells a deceased person's dwelling that they acquired as a beneficiary of that person's deceased estate provided that:
their ownership interest ends within 2 years of the person's death;
and either
a. the deceased acquired the dwelling before 20 September 1985, or
b. if the deceased acquired the dwelling after 19 September 1985 the deceased was using the dwelling as their main residence at the time of their death.
In your case, the deceased acquired the dwelling before 20 September 1985. The deceased died on date A. Due to a legal dispute, title did not pass to you and your spouse until date B.
You have requested the Commissioner to allow you to begin the required two year period for exemption from the date the legal dispute for the dwelling ended (date B) instead of taking the two years from the date of death of the deceased (date A).
According to the deceased's will, you and your spouse were the beneficiaries of the dwelling in question. Following the death of the deceased your relative contested the will and the legal dispute took more than 20 months to resolve.
Due to the long time to settle the dispute, you and your spouse have not had time to contemplate what to do whilst the dispute was in progress. You require further time to sort out what to do about the dwelling, which you intend to sell within 12 months.
Whilst the Commissioner recognises your personal circumstances, there is no discretion within the legislation to allow the Commissioner to extend the two year period. To obtain the exemption, the ownership interest needs to end within two years of death.
Cost base
The cost base of an asset consists of five elements. Where an asset was acquired by the deceased before 20 September 1985, the first element of the cost base of the asset in the hands of the beneficiary is the market value of the asset on the date of death.
The legal costs incurred by you to resolve the dispute with the person claiming an interest in the dwelling may form part of the fourth element of the cost base.