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Edited version of your written advice
Authorisation Number: 1012703820671
Ruling
Subject: CGT - deceased estate - two year discretion
Question 1
Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period to 30 June 2015?
Answer
Yes
Question 2
Can you disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The deceased passed away in the 20XX financial year.
You and (A) are joint trustees of the deceased estate.
The deceased moved from their main residence (the property) into an aged care home.
The property is a pre-CGT asset and has never been used for income producing purposes.
(A) has been living in the house since this time and continued to live in the house until the end of they moved out, where they lived rent free to assist them and in order to care for the house.
(A) suffers from significant health issues and has not been able to move out of the house any earlier. They are under regular care from their GP and medical specialist.
Since (A) moved out, you have acted quickly to engage an agent and hope to be able to sell the property within the next few months.
The property is scheduled for auction on soon, however it will be beyond the two year time limit.
You seek an extension of the time limit for a few months at least, enough to cover any delays in the sale and settlement of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 118-195
Reasons for decision
As per subsection 118-195(1) of the ITAA 1997, a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling or your ownership interest in it is disregarded if:
(a) 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; and
(b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.
Beneficiary or trustee of deceased estate acquiring interest | |||
Item |
One of these items is satisfied |
And also one of these items | |
1 |
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 |
your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner | |
........... | |||
2 |
the deceased *acquired the *ownership interest before 20 September 1985 |
the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: | |
|
|
(a) |
the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or |
|
|
(b) |
an individual who had a right to occupy the dwelling under the deceased's will; or |
|
|
(c) |
if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual |
In this case, when the deceased died the property passed to the legal personal representative. The property was not used to produce assessable income and it was their main residence just before their death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can choose to dispose of the property.
The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion:
• 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 (eg 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 reasons 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 the beneficiary held it.
In this case, (A)'s personal circumstances (significant health issues) meant they were unable to move out of the house any earlier than the time they did, and was outside your control. When they were able to move out, you did not hesitate to commence the sale process and the property has been listed for action in 20YY. You hope to be able to sell the property within the next few months.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit to 30 June 2015.
As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.