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Edited version of your written advice
Authorisation Number: 1012868521844
Date of advice: 27 August 2015
Ruling
Subject: Capital gains tax - deceased estate - request for the Commissioners Discretion
Question:
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 until the date that settlement on the disposal of the inherited dwelling occurred?
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
Note: for the purpose of this private ruling, the beneficiaries of the Estate of the deceased will be identified, and will be referred to that identification throughout the ruling.
The deceased purchased a property (the dwelling) after 20 September 1985.
The dwelling was the deceased's sole place of residence until they passed away a number of years later.
The deceased's will named their children, being Child A, Child B and Child C as both the Trustees and the beneficiaries of their estate.
The deceased's spouse had resided in the dwelling with the deceased from the time it had been purchased and had continued to reside in the dwelling after the deceased had passed away.
Shortly after the deceased passed away, the deceased's spouse suffered medical problems.
Child A had moved into the dwelling with their child to provide the deceased's spouse with part-time care around X months after the deceased passed away.
The deceased's estate was fully administered and the title of the dwelling was transferred into the names of the beneficiaries around twelve months after the deceased passed away.
The deceased spouse's health deteriorated and they required hospitalisation on multiple occasions.
The deceased's spouse passed away around two years after the deceased passed away.
The dwelling has not been used to produce assessable income.
The dwelling was put on the market around four months after the deceased's spouse passed way.
A contract for the sale of the dwelling was entered into shortly after the dwelling had been put on the market, with settlement occurring around two months later.
It is submitted that as the dwelling required renovation and work to prepare it for sale, and the beneficiaries of the deceased's estate did not wish to cause further disruption to Child A's child's final school terms, the beneficiaries of the deceased's estate were unable to put the dwelling on the market until about X months after the deceased's spouse had passed away.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 118-130(3)
Income Tax Assessment Act 1997 Section 118-195
Reasons for decision
Commissioner's discretion under Section 118-195 of the ITAA 1997
Subsection 118-195(1) of the ITAA 1997 provides a capital gains tax (CGT) exemption to a beneficiary or trustee of a deceased estate where a CGT event happens to a dwelling (or an ownership interest in a dwelling) acquired from a deceased estate.
An exemption is provided where the beneficiary or trustee's ownership interest in the dwelling ends within two years of the deceased's death and just before the deceased's death (for pre-CGT dwellings) the dwelling was their main residence.
The Commissioner has discretion to extend the two year time period in subsection 118-195(1) of the ITAA 1997 where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where:
1. the ownership of a dwelling or a will is challenged;
2. the complexity of a deceased estate delays the completion of administration of the estate;
3. 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 (for example, the taxpayer or a family member has a severe illness or injury); or
4. settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
We have taken the facts of your situation into consideration when determining whether the Commissioner's discretion would be exercised extend the two year period and allow you to disregard any capital gain or capital loss made on the disposal of the dwelling under subsection 118-195(1) of the ITAA 1997.
We accept that the reason for the delay in the disposal of the deceased's dwelling was due the reasons provided in your private ruling application.
After considering the facts of your situation, the Commissioner will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year period until settlement on the disposal of the dwelling occurred. Therefore, any capital gain made on the disposal of the dwelling can be disregarded.