Edited version of private advice

Authorisation Number: 1012660228428

Ruling

Subject: Capital gains tax exemption

Question 1

Will the Commissioner exercise the discretion to allow a longer ownership interest period for the purposes of the capital gains tax (CGT) exemption under sub-section 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Income year ending 30 June 2014

Income year ending 30 June 2015

The scheme commences on:

30 June 20XX

Relevant facts and circumstances

The deceased died in 20XX.

The deceased owned property (the Property). The deceased acquired ownership of the Property in 2000.

Prior to death, the Property was the deceased's main residence and was not being used for the purpose of producing income.

Probate of the deceased's Will was granted in 20YY.

The beneficiary is the sole beneficiary under the Will of the deceased.

The Property is included in the estate of the deceased; it is currently owned by the trustee of the estate.

Since the grant of probate, the trustee of the estate has prepared the Property for sale; it is listed for sale by auction.

The sale of the Property is likely to give rise to a capital gain in the estate.

The delay in the grant of probate of the estate was a consequence of the Will not being located until 20ZZ, and the trustee of the estate taking action to ensure the authenticity of the Will.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

Subsection 118-195(1) of the ITAA 1997 provides that where an individual makes a capital gain or loss from a CGT event that happens in relation to a dwelling, and the individuals interest in the dwelling passed to them as a beneficiary of a deceased estate or they own it as trustee of the deceased estate, the gain or loss will be disregarded if:

• 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 was not then being used for the purpose of producing assessable income; and

• the individuals ownership interest ends within two years of the deceased death, or within a longer period allowed by the Commissioner of Taxation

In your circumstances, provided the Commissioner extends the two year period to end the ownership interest, subsection 118-195(1) would apply to disregard any capital gain or loss made on the sale of the Property.

The Commissioner would be expected to exercise the power to extend the two year period in situations where (the following examples are not exhaustive):

• 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.

You advised that the delay in the grant of probate of the estate (and consequently the sale of the Property) was a consequence of the Will not being located until 20ZZ, and the trustee of the estate taking action to ensure the authenticity of the Will.

These circumstances are considered to be a reasonable explanation for the delay in the sale of the Property; the reason for the delay was outside of the control of the trustee of the estate or the beneficiary. As such, the Commissioner will exercise the power in subsection 118-195(1) of the ITAA 1997 and extend the two year period.