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Edited version of your written advice
Authorisation Number: 1012710426230
Ruling
Subject: Deceased estate
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 31 December 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:
Period ending 31 December 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The deceased passed away.
The property was purchased by the deceased and their spouse before 1985.
The property was the main residence of the deceased since it was purchased and was never used to produce assessable income.
Beneficiaries of the will and property were equally shared between the deceased's family.
A has resided in the property since their birth and will continue to reside in the property until it is sold.
A was responsible for the care of the deceased, such as taking them to their various doctor appointments and looking after their day-to-day medication and living requirements.
A has suffered from a medical condition since for a number of years.
Over the past two years, A has undergone extensive medical tests and treatments.
Following the deceased's passing, A suffered from considerable depression and anxiety, which together with their own medical issues meant they did not have the capacity to deal with the possibility of the property being sold.
The property has not been rented at any time since the deceased passed away.
The property was put on the market in late 20XX and is expected to be sold within the next few months.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 118-195
Reasons for decision
As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (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 deceased's family as beneficiaries of the will. 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, the delay in disposing of the property has been significantly influenced by A's serious personal circumstances (continual ill health) and is outside of your control.
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 31 December 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. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.