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Edited version of your written advice
Authorisation Number: 1012794765896
Ruling
Subject: CGT - deceased estate - 2 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?
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 200X
Relevant facts and circumstances
The deceased died on 1 June 20XX.
Probate was granted to D to act as Executor and Trustee of the Estate in 20XX.
One of the assets of the estate was a house (the property).
The property was the main residence of the deceased from prior to 1985 to the date of their death.
The property has not been used to produce assessable income.
After the death of the deceased, their child A took possession of the house and refused to vacate.
D was successful in applying for a court order on to have A removed from the property.
A was forcibly removed by a bailiff pursuant to the court order in 20XX.
When A left the property, they took personal possessions, possessions of D, Estate possessions and all the paper records pertaining to the administration of the Estate. There were only hard copies of the documents as D did not keep any in electronic format.
D made efforts to recover the documents from A; however these efforts were not successful.
After A was removed from the property, S moved into the property and died in 20XX.
Due to the death of S, D suffered great emotional distress and had difficulty functioning.
In 20XX, M commenced proceedings seeking to have D removed as administrator of the Estate.
D engaged a real estate agent in 20XX and a contract of sale was signed in 20XX.
The sale of the property settled in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 118-195(1)
Income Tax Assessment Act 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 |
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 dispose of the property.
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 (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 beneficiary held it.
In your case, the delay in the disposal of the property was impacted A taking possession of the property and refusing to vacate. The application of a court order to have A removed from the property, which ultimately ended in A being forcibly removed. At that time A took possession of certain estate assets and the Executor's records and papers relating to the administration of the estate which also delayed the finalisation of the estate.
The passing of S and the action commenced by M to have D removed as Executor also contributed to the delay in the administration of the Estate.
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.
As a result, 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.