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Edited version of your written advice
Authorisation Number: 1051198808806
Date of advice: 7 March 2017
Ruling
Subject: Deceased estate exemption for Capital Gains Tax
Question 1
Will the Commissioner exercise his discretion under subsection 118-195(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year limit to disregard a capital gain on the sale of the deceased taxpayers main residence.
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
A person passed away intestate.
The property was the primary place of residence for the deceased.
A person resided in the property together with the deceased until the date of death.
Right of residence in the property was provided to a person from the date of death for a period.
A dispute arose between the former de-facto spouse and the deceased's two adult children, the administrator and sibling as to whether the individual was in fact the de-facto spouse for the purpose of the scheme of distribution in intestacy.
A proceeding was commenced in Court by the de-facto spouse seeking a grant of administration in the Estate.
A proceeding was commenced in Court by the administrator and sibling seeking additional provision from the Estate (“the family proceedings'”).
Both proceedings were settled at mediation with final orders made in the contested probate proceedings on and the family provision proceedings.
A notice was received to rectify infringements in relation to compliance of the pool on the property.
The property was vacated
A pest report detailing extensive termite damage to the property requiring rectification prior to sale was received.
The property was listed for sale
Contract for sale of property was signed.
Settlement occurred.
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
Income Tax Assessment Act 1997 subsection 118-195(1)
Reasons for decision
Summary
The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time.
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 two 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 purchased by the deceased on or after 20 September 1985 and was their main residence until they passed. The property was not sold within two years of the deceased's date of death.
You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the two year time period.
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
Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until DDMMYY.