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Edited version of your private ruling
Authorisation Number: 1012471910939
Ruling
Subject: Capital Gains Tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption
Question: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) in your particular circumstance?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
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.
You are the trustee of a deceased estate.
The deceased acquired a villa at a retirement villa estate after 20 September 19XX, which was their main residence until their death.
Under the contract signed by the deceased the villa had to be disposed of by the retirement villas' real estate agent.
You maintained the villa during the period from the deceased's death and its eventual disposal which included the payment of:
· rates
· water
· refurbishments, and
· monthly levies.
Under the contract the villa could not be rented out, nor were family members able to use the villa or the facilities.
The villa was constantly marketed for sale, the eventual sale, from the only offer received did not occur until settlement date early this year after dropping the price by a specified amount.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-195
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Due to recent changed to section 118-195 of the ITTA 1997, the Commissioner now has discretion to extend the two-year period in the Act where:
· the ownership of a dwelling or 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 unforseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury), or
· settlement of a contract for sale over the dwelling is unexpectedly delayed or falls through or circumstances outside the beneficiary or trustee's control.
In your case, the deceased's villa was not disposed of within two years from their date of death due to the villa not being disposed of until the one and only offer was received and the sale price was dropped by a specified amount.
Based on the information you have provided, we believe that you do not meet the criteria in which the Commissioner may exercise his discretion to extend the two-year period in which a deceased's main residence must be disposed of.
Therefore, the Commissioner does not consider that it is appropriate to exercise his discretion to extend the two-year period in which a deceased's main residence must be disposed of.
The normal capital gains tax (CGT) rules will apply to the disposal of the villa.
CGT
The most common CGT event, CGT event A1 occurs when you dispose of an asset to another entity. The time of the event is when you enter into the contract for sale, if there is no contract - when the change of ownership occurs.
You make a capital gain if the capital gain if capital proceeds from the CGT event are more than the asset's cost base. You make a capital loss if your reduced cost base is greater than your capital proceeds
Deceased estate - main residence
Special rules apply of the asset was the deceased person's main residence. If you inherit a deceased person's property, you may be exempt or partially exempt when a CGT event occurs to it.
For more information on how CGT applies please see the enclosed information. This information has been taken from the Guide to capital gains tax 2011-12 (NAT 4151).
Information is also available on our website - www.ato.gov.au.