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Edited version of your private ruling
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Ruling
Subject: Capital gains tax - deceased estate - Commissioner's discretion
Question 1
Does section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the disposal of the dwelling?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2012.
The scheme commences on:
On or after 30 June 2007.
Relevant facts and circumstances
Your sibling passed away during the year ended 30 June 200Y.
Your parent was the beneficiary of your sibling's main residence. This residence was purchased by your sibling prior to 20 September 1985.
Your parent passed away during the year ended 30 June 200X.
You are the main beneficiary of your parent's estate and therefore the beneficiary of your sibling's main residence.
You were unable to sell the residence within two years because of contention between your sibling's and your parent's estate.
You are seeking the Commissioner's discretion to extend the two year period for a capital gain tax exemption on an inherited main residence.
Your sibling's main residence was transferred from their estate to you. Although you inherited the residence through your parent's estate the Land Title was never transferred into your parent's estate.
The residence was sold by you and the settlement date was within a few month of the Land Title being transferred. This was over four years and nine months after your sibling passed away.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 108-5
Income Tax Assessment Act 1997 section 110-25
Income Tax Assessment Act 1997 section 110-55
Income Tax Assessment Act 1997 section 118-195.
Reasons for decision
A capital gain or capital loss arises only when a capital gains tax (CGT) event occurs. CGT event A1 occurs when there is a change in the ownership of a CGT asset.
On the sale of your sibling's main residence (the dwelling), CGT event A1 occurred. You made a capital gain if the capital proceeds from the disposal were more than the dwelling's cost base. You made a capital loss if those capital proceeds were less than the dwelling's reduced cost base.
A capital gain or capital loss made as the result of a CGT event occurring may be exempt. Section 118-195 of the ITAA 1997 is a special provision that can apply to dwellings acquired from a deceased estate which makes them exempt from CGT.
Under this provision a full CGT exemption would be allowable if all the following conditions were met:
· the interest passed to you as a beneficiary of a deceased estate or you owned it as a trustee of a deceased estate
· 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
· your ownership period ends within two years of the deceased's death.
The interest in the dwelling passed to you as a beneficiary of your parent's estate. Your parent acquired ownership interest in the dwelling on the day your sibling died which was after 20 September 1985. This provision however does not apply in your case as the dwelling was never you parent's main residence.
Section 118-195 of the ITAA 1997 can not be applied to disregard the capital gain made on the sale of the dwelling. An extension of the third condition listed above in relation to your ownership period ending within two years cannot be granted because you have not met the other conditions under this provision for CGT to be exempt.
To assist you in calculating your capital gain or capital loss, please refer to the following enclosed fact sheets:
· Introduction to capital gains tax
· What is the cost base?
You were taken to have acquired the asset on the day your parent died. Your cost base for the first element will be the same cost base as your parent's, which is the market value on the day your sibling died, because they acquired the dwelling prior to 20 September 1985.