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Edited version of your written advice
Authorisation Number: 1012843900765
Date of advice: 20 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 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 20XX
Relevant facts and circumstances
The deceased died in 20XX.
The deceased died Intestate, and both a defacto spouse and the deceased's former spouse, as tutor for the deceased's child, made applications to the court.
Proceedings commenced in 20XX following conflicting applications for Letters of Administration.
The Hearing took place in 20XX.
Judgement was delivered in 20XX.
A public trustee was appointed as administrator of the estate in 20XX and ordered that the deceased's child receive X% of the distribution from the estate and the deceased's defacto spouse receive X%, including the notional estate.
A dwelling (the property) was part of the estate.
The property was acquired by the deceased after 20 September 1985.
The dwelling was the deceased's main residence until the time of their death.
The property was not used for the purpose of producing assessable income.
The public trustee sold the property more than 2 years after the deceased's death.
Relevant legislative provisions
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 was caused by the complexity of the deceased's estate. The administration of the deceased's estate could not be finalised until the issue of the court order which occurred in 20XX. This prevented the trustee from disposing of the property within the two year time limit. The property was the main residence of the deceased until the time of their death and it was not used to produce assessable income.
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.