Edited version of private advice

Authorisation Number: 1012651317930

Ruling

Subject: CGT-deceased estate

Question

Will the Commissioner exercise the discretion to extend the two year rule in regards to the disposal of a deceased's main residence?

Answer

Yes

This ruling applies for the following period(s)

Year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

The deceased passed away a few years ago.

The deceased owned a dwelling that was their main residence just before their death.

One of the beneficiaries approached a real estate agent to deal with the sale of the estate on a date. However there were a number of factors resulting in a lengthy delay to place the property on the market, these being:

• the deceased had not left a valid will and there were difficulties in locating other beneficiaries

• there was a significant delay in obtaining the letters of administration from the Supreme Court which were not granted until a date

• a subsequent delay was encountered through the Public Trustees who did not confirm until a date that no further action was required by them.

Once the Public Trustee wound up the estate the property was placed on the market and sold and settlement took place on a date.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

Capital gains tax

Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a trustee of a deceased estate to disregard a capital gain or capital loss made from a Capital Gains Tax (CGT) event (ie. sale of the property) that happens in relation to a dwelling where:

The ownership of the dwelling passed to the trustee of the deceased estate on the owner's death,

The deceased person died after 20 August 1996,

The deceased acquired the dwelling before 20 September 1985, and

The dwelling was the deceased person's main residence just before death.

You meet the above requirements. Therefore, you may be eligible to disregard the capital gains tax if:

- you dispose of your interest in the dwelling within two years of the deceased's death, or within a longer period allowed by the Commissioner.

A trustee of a deceased estate may apply to the Commissioner to grant an extension of the two year time period, where the CGT event happens in the 2008-09 income year or later income years. Generally, the Commissioner would exercise the discretion in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example:

• 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.

These examples are not exhaustive.

In exercising the discretion the Commissioner will also take into account whether and to what extent the dwelling is used to produce assessable income and for how long the trustee or beneficiary held the ownership interest in the dwelling. 

In your case, the property took a long time to sell due to delays in the completion of administration of the estate. The dwelling sold and settled just under four months past the two year period from date of death.

The delay in selling the dwelling falls into the examples stated above and as such the Commissioner will exercise his discretion to extend the two year rule in regards to the disposal of the deceased's main residence.