Edited version of your private ruling

Authorisation Number: 1012602454051

Ruling

Subject: Private Ruling: Income Tax ~~ Capital Gains Tax

Question 1

Will the Commissioner exercise the discretion to extend the two-year time period for the disposal of a dwelling, pursuant to section 118-95(1)(b) of the Income Tax Assessment Act 1997 such that you can disregard the capital gain arising from the sale of the dwelling, which settled 2 years and 37 days after the deceased's date of death?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2014

The scheme commences on:

March 20XX

Relevant facts and circumstances

1. The deceased died mid-October 20YY.

2. The deceased and their spouse purchased the property before 1995 when it was vacant land only.

3. In a specific year, a dwelling was constructed on the property and the deceased and their spouse moved into the dwelling as soon as practicable.

4. The deceased's spouse passed away on in March 20XX and his/her ownership interest in the property transferred to the deceased.

5. In August 20ZZ, the deceased's health deteriorated and resulted in them having to move to an aged care facility.

6. The deceased stayed in the aged care facility until their death, which occurred on mid-October 20YY.

7. Just before the deceased's death, the dwelling was the deceased's main residence.

8. Just before the deceased's death, the dwelling was not being used to produce assessable income.

9. The property formed part of the deceased's estate.

10. Probate of the deceased's will was granted to the Executrix/Executor in late February of a particular year.

11. There were A residual beneficiaries of the estate.

12. The Executrix/Executor and the beneficiaries planned to finalise estate matters as soon as practical following probate. However, they encountered delays due to the following:

a. The A beneficiaries were negotiating between themselves how best to settle matters concerning the property, including the possibility of subdivision, or,B of the beneficiaries acquiring the C beneficiary's interest in the property;

b. In early 20DD, after probate was granted, the beneficiaries discovered that one of the beneficiary's close relatives was seriously ill. The beneficiaries agreed between themselves to delay further discussions in relation to the property until the relative's condition had improved.

13. This delayed the finalisation of the estate for a number of months and once the health issues were resolved, the beneficiaries then recommenced discussions on the property and agreed to sell as soon as practicable.

14. A buyer for the property was found and the contract of sale signed late August 20DD.

15. Settlement of the sale occurred on late 2013 and was a specific time after the date of death of the deceased.

16. The sale will result in a capital gain to the Trustee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-195(1),

Income Tax Assessment Act 1997 Section 118-145 and

Tax Laws Amendment (2011 Measures No. 9) Act 2012.

Reasons for decision

Summary

The Commissioner will exercise the discretion to extend the two year time period for the disposal of the dwelling under subsection 118-195(1) Income Tax Assessment Act 1997 (ITAA 1997) until 23 November 2013.

This is because the beneficiaries of the deceased estate were unable to attend to the deceased estate due to serious personal circumstances arising during the two-year period and the Commissioner finds this to be an acceptable reason to allow the extension of time.

Detailed reasoning

Tax Laws Amendment (2011 Measures No. 9) Act 2012, which received Royal Assent on 21 March 2012, gives the Commissioner discretion to extend the time period in subsections 118-195(1) and 118-200(3) of the ITAA 1997, where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death.

Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if the deceased died on or after 20 September 1985 and had acquired the dwelling on or after 20 September 1985 and you have an ownership interest in a dwelling that passed to you as a beneficiary in a deceased estate, or you have owned it as trustee of a deceased estate, you disregard any capital gain or capital loss you make from a capital gains tax (CGT) event that happens to the dwelling if the following applies:

• you disposed of your ownership interest within two years of the deceased's death (or a longer period allowed by the Commissioner), and

• just before the deceased's death:

• the dwelling was their main residence; and

• it was not then being used to produce assessable income.

Where a trustee or beneficiary of a deceased estate cannot access a CGT exemption under section 118-195 of the ITAA 1997, section 118-200 of the ITAA 1997 may provide a partial exemption.

Part 8 of Chapter 8 of the Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No.9) Act 2012 states the Commissioner would be expected to exercise discretion in situations where:

• 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 (for example, 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 circumstances outside the beneficiary or trustee's control.

Section 118-145 of the ITAA 1997 provides that the main residence of an individual can continue to be regarded as the main residence of the individual despite the fact that the individual no longer lives in it. If the dwelling is not used to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as the main residence for an unlimited period. If the dwelling is used to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. In addition, if the deceased was not living in the home at the date of their death, they or their trustee may have chosen to continue to treat it as their main residence. This may happen if, for example, the person moved to a nursing home.

In your case, the deceased resided in the dwelling until they moved to a retirement home in August 20ZZ and subsequently passed away mid October 20YY. You chose to continue to treat the dwelling as their main residence during this time and therefore the dwelling was the deceased's main residence up until the time of their death. You have also stated that just before the deceased's death, the property was not being used to produce assessable income. Therefore, you have met the conditions specified in section 118-195(1) to disregard a capital gain other than the condition that the trustee's ownership interest in the deceased estate must end within two years, or a longer period allowed by the Commissioner. The Commissioner's discretion to allow a longer period will now be considered.

You have stated that finalisation of the deceased estate was delayed by a number of months due to one of the beneficiary's relatives having a serious illness. A family member with a serious illness is a situation listed in the Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No.9) Act 2012 where the Commissioner would be expected to exercise discretion.

This is considered to be a reasonable explanation for the delay in the disposal of the dwelling and the Commissioner will exercise his discretion to extend the two year time period until late November 20DD.