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Edited version of private advice
Authorisation Number: 1012651079195
Ruling
Subject: Capital Gains Tax
Question and answer:
Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997?
No.
This ruling applies for the following periods:
Year ending 30 June 2014
The scheme commenced on:
1 July 2013
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 died a number of years ago.
The property was inherited by the deceased in pre 1985.
The deceased moved into the property as soon as possible.
The deceased lived in the property until their death.
The deceased left a will giving their spouse use and enjoyment of the property until their death or they remarried.
The deceased spouse was responsible for all costs associated with the property and was required to keep the property in reasonable condition.
The deceased spouse lived in the property until they moved out to live with their new partner and they rented the property out until their recent death.
The estate received no financial benefit from the property being rented and the estate has not been able to be finalised until after the death of the deceased's spouse.
The property was sold recently.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Subsection 118-195(1).
Reasons for decision
A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset.
Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased after 20 September 1985 if:
• the property was the deceased's main residence just prior to their death
• it was not being used to produce assessable income at this time, and
• Your ownership interest ends within 2 years of the deceased's death.
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property:
• 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
In determining whether or not to grant an extension the Commissioner is expected to consider whether, and to what extent, the dwelling is used to produce assessable income and how long the trustee or beneficiary held it.
In your case, the terms of the will allowed the deceased's partner the use and enjoyment of the property for as long as they wished unless they were to die or remarry.
The deceased's spouse died and then the estate was able to dispose of the property.
The Commissioner will not exercise his discretion to extend the 2 year time limit as the terms of the will allowed the deceased's spouse use and enjoyment of the property for the duration of their life or until they remarried
The property was used by the spouse and therefore was not able to be sold within the 2 year time period set down in section 118-195 of the ITAA 1997.
The reason for the delay was simply the terms and conditions of the will, not a reason outside of the will or external to the estate.
Accordingly, the sale of the property will not be exempt from CGT pursuant to section 118-115 of the ITAA 1997.