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Edited version of your written advice
Authorisation Number: 1012842353262
Date of advice: 17 July 2015
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?
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 ended 30 June 2015
The scheme commences on
1 July 20XX
Relevant facts and circumstances
The deceased died in 20XX.
State Trustees were appointed as executor of the deceased's estate in 20XX.
One of the main assets of the estate was the house (the property).
The deceased purchased the property as sole owner prior to 20 August 1985.
The deceased lived at the property as their main residence from acquisition until they moved into a nursing home in 19XX.
The deceased continued to treat the property as their main residence up to the date of their death.
The property has never been used for the purpose of producing assessable income.
The deceased's child, X lived in the property with the deceased and refused to vacate the property after the deceased's death.
X suffers with an intellectual disability and relied on the deceased for support with everyday tasks.
X struggled to live independently since the deceased's death and due to their disability; they have had difficulty sourcing alternative accommodation to meet their requirements.
During the period between the deceased's death and 20XX, X has had a number of different people appointed as Guardian to assist with finding alternative accommodation. X was also appointed a disability case worker to assist with the search.
X disengaged with the various appointed Guardians and the disability case worker and the Office of Public Advocate were appointed as X's Guardian.
In 20XX, the Guardianship order was revoked and the Office of Public Advocate advised they "were unable to move X due to behavioural issues and a forced removal was not an option due to their mobility".
X found alternative accommodation that suited their needs and vacated the property in 20XX.
When X vacated the property, the Executor of the estate prepared the property for sale and placed it on the market. The property sold in 20XX, with settlement to occur 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 by X refusing to vacate the property. Due to the disability suffered by X, it took an extended period of time to find an alternate property that suited their needs and that X would agree to move into. There were further delays due to the breakdown of the relationship between and the appointed Guardians, causing the re-appointment of new Guardians which were outside the control of the Trustee. Once X vacated the property, the trustee placed the property on the market and a contract of sale was signed within four 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 20XX.
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.