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Subject: Capital gains tax - deceased estate
Question: Can the Commissioner extend the two year period for the disposal of the dwelling?
Answer: No.
This ruling applies for the following period:
Income year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
The deceased passed away after XX September 19XX.
The deceased had purchased a dwelling before XX September 19XX and it was the deceased's main residence.
One of the deceased's children put a caveat on the dwelling and commenced a legal challenge in relation to the deceased's will.
You, as the trustee of the deceased's estate had exercised all options to have the dwelling disposed of within the X year period after the deceased's date of death.
The settlement and disposal of the dwelling occurred more than seven years after the date the deceased had passed away.
A capital gain was made on the disposal of the dwelling.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 118-130(3)
Income Tax Assessment Act 1997 Subsection 118-195(1)
Income Tax Assessment Act 1997 Subsection 118-195(2)
Reasons for decision
Disposal of inherited dwelling within two years of date of death
A full main residence exemption may be applicable to the trustee of a deceased estate where the dwelling of the deceased is disposed of within X years of the deceased's death. The relevant ownership interest of a trustee in the dwelling must end within X years of the deceased's death in order for the concession to apply. Where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at time of settlement of the contract of sale.
The Commissioner does not have any discretion to extend the two year period. This means that the full exemption will not be available where, for example, a protracted dispute prevents administration of the estate being completed within X years. Therefore if a property is not sold within the X year time frame, then any capital gain or loss realised on the property will be assessable.
In this case, the deceased passed away after XX September 19XX and a dwelling formed part of the deceased's estate. The dwelling was not disposed of until more than seven years after the date of the deceased's death due to legal action and the placing of a caveat on the dwelling.
Whilst we appreciate and acknowledge the circumstances of this case, unfortunately there is no discretion for the Commissioner to extend the two year period. As the dwelling was not disposed of within two years of the date the deceased passed away, any capital gain made on the disposal of the dwelling will be assessable.
Note: In the 2011-12 Federal Budget Paper No. 2, it was announced that the Government proposed to make minor amendments to the tax laws to provide the Commissioner of Taxation with a discretion to extend the two year ownership period in which the trustee of a deceased estate, or beneficiary of such an estate, must dispose of their interest in the deceased's dwelling to access a full capital gains tax main residence exemption, or a more generous partial exemption.
At this point in time, the Bill has not been passed by Parliament in relation to this issue. Therefore, the current legislation will continue to apply until new legislation is approved by Parliament.