Edited version of private advice

Authorisation Number: 1051614631983

Date of advice: 2 December 2019

Ruling

Subject: CGT Deceased Estate

Question

Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997 for a residential property situated in Australia?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2019

The scheme commenced on:

1 July 2015

Relevant facts and circumstances

The deceased died in 2015.

The residential property situated was built by the deceased before capital gains tax was introduced in Australia.

The property was used as the main residence of the deceased until the death of the deceased. The property is built on a block of land with an area of XXX square metres (less than 2 Hectares).

The property was transferred to the beneficiary in late 2015. However in 2016 a legal challenge was issued for the Will. Legal advice indicated that the property could not be sold until this dispute was resolved.

The dispute over this Will was resolved in 2017. It was only at this point that the house could be offered for sale.

The deceased's carer then made an offer to buy the property. This would require the sale of a property and negotiating finance for the purchase. The carer attempted to both sell a property and negotiate finance for 12 months but eventually it was decided that it would be necessary to offer the home for sale to the general public and to proceed to a public listing.

The property was therefore listed for sale in 2018. A contract to purchase the property was signed a month later. Settlement took place in late 2018.

The deceased's carer resided at the property from before the death of the owner until settlement of the property.

There was no provision in the will to allow the property to be occupied after the death of the owner.

Relevant legislative provisions

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

Reasons for decision

A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset.

Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you owned a dwelling as the trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased before 20 September 1985 if:

·        your ownership interest ends within 2 years of the deceased death, or within a longer period allowed by the Commissioner.

Or

·        during the period from the date of death until the ownership interest ends, the property was the main residence of an individual who had the right to occupy the dwelling under the deceased's will.

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).

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 (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 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 this case there was a delay from the date of death to the settlement of the property in late 2018.

The delay was predominantly due to the legal dispute concerning the Will and also the delays caused by the carer who sought finance in order to make an offer to purchase the property. Whilst the carer lived at the property with the permission of the deceased, the will did not provide authority for occupation after the death of the owner.

The Commissioner regards the circumstances relating to the delay in the sale of the property as not being beyond the control of the Executors. While the Commissioner accepts that the legal dispute with the Public Trustee was an event beyond the control of the Executors, the further delay after the dispute was resolved was avoidable.

There was no impediment to prevent the Executors from listing the property for sale immediately after the dispute was resolved. Instead, the Executors chose to accept a further 12 month delay to allow a potential buyer to attempt to sell a property and negotiate finance for the purchase of the deceased's property.

This delay was not caused by circumstances outside the beneficiary or trustee's control. The Commissioner will therefore not exercise his discretion to extend the 2 year time limit to the settlement date.

Accordingly, the sale will not be exempt from CGT pursuant to section 118-195 of the ITAA 1997.