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Edited version of your written advice
Authorisation Number: 1013030090586
Date of advice: 6 June 2016
Ruling
Subject: Capital gains tax
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
Yes.
This ruling applies for the following period
Year ending 30 June 20ZZ
The scheme commenced on
1 July 20YY
Relevant facts
You are a beneficiary of your relation's estate. Your relation passed away in 20XX.
The estate included your relation's residence.
The property was owned by your relation from the time it was constructed before 1985 until their death.
The property was left to you and your sibling in the will.
For a number of years prior to your relation's passing, your sibling lived in the property and has continued to live there until present as their main and only residence.
The property has not been rented out or used to produce income.
The sale of the property has been delayed due to a person's condition. This person has a severe medical condition and requires fulltime care and is unable to live independently. Prior to your relation's passing, the deceased was their primary carer.
Upon your relation's passing, you and your sibling spent a great deal of time and effort in trying to find suitable full time care and accommodation for the person. This took XX months to achieve this.
Also, during the two year period since your relation's passing your spouse suffered from serious health problems which required periods of hospitalization. This placed a great deal of emotional and financial stress for you.
Your sibling who has been living in the property is now planning on moving out and the property will be placed on the market.
The property should be sold before the end of 20YY.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-195
Detailed reasoning
Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if:
• the property was acquired by the deceased before 20 September 1985, or
• the property was acquired by the deceased 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, and
• your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances).
You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed).
In this case, the property was the main residence of the deceased until they passed away.
The Commissioner can exercise his discretion 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, you inherited an ownership interest in the property after your relation passed away. You have had serious personal circumstances arising over the last 2 years. The property will now be placed on the market. Although your sibling's position is not a reason to extend the 2 year period, your other personal circumstances are a situation in which the Commissioner can exercise his discretion. Having considered the relevant circumstances, the Commissioner will exercise his discretion and extend the 2 year time limit to 20YY.