Edited version of your written advice

Authorisation Number: 1013019482173

Date of advice: 18 May 2016

Ruling

Subject: CGT - deceased estate - EOT

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?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The deceased and their spouse purchased/built a house prior to the introduction of CGT; a family member has also lived in the property since this date.

The deceased's spouse passed away in 19XX. The deceased continued to live in the property with the family member.

The deceased passed away in 201X, giving you verbal instruction to allow the family member to reside in the property for as long as he/she wished to.

The deceased's will does not give the family member a right to occupy the property.

Your family member is now aged XX and you do not want to unsettle him/her by selling the house and making him/her move.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-195(1).

Reasons for decision

Subsection 118-195(1) of the ITAA 1997 disregards a capital gain or loss from a CGT event that happens to a dwelling owned by a taxpayer as a trustee of a deceased estate, if:

• the taxpayer's ownership interest ends after 20 August 1996 and within 2 years of the person's death or

• from the deceased's death until the taxpayer's ownership interests ends, the dwelling was not used to gain or produce income and it was also the main residence of one or more of:

• the spouse of the deceased immediately before death,

• an individual who had a right to occupy the dwelling under the deceased's will.

This outcome is consistent with the general rule of construction that the intent of the deceased must be ascertained from the words of the will and that one cannot speculate or guess after that intention. (see Certoma, GL 1987, The Law of Succession in New South Wales, The Law Book Company, Sydney, p. 117)

An individual would be considered to occupy a dwelling under the deceased's will if it was in accordance with the terms of the will. This would also be the case if it was in pursuance of the will or under the authority of the will (see Evans v. Friemann (1981) 53 FLR 229 at 238).

In your case, the deceased's main residence will not be sold within the two year time limit. The deceased's will did not stipulate a right to occupy the dwelling for the family member. While it may have been the wishes of the deceased for the family member to reside in the property, this is not enough for the purposes of the main residence exemption as there was no right to occupy the dwelling under the will.

There are certain circumstances where the Commissioner can exercise his discretion in relation to this time limit, in situations such as where:

• 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 (for example, 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 circumstances outside the beneficiary or trustee's control

In your case, the delay in selling the property will be for the family member to be able to continue to reside in the property. Unfortunately, this is not a situation where the Commissioner can exercise his discretion.

Therefore the capital gain made on the disposal of the dwelling will not be able to be disregarded entirely.