Edited version of private advice

Authorisation Number: 1051737104803

Date of advice: 11 August 2020

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 to XX XXXX 20XX for a residential property in Australia?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased died in late 20XX.

The property was purchased by the deceased after the introduction of CGT.

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.

A relative of the deceased lived at the property with the deceased and remained living in the property after their death despite no allowance being made in the will for such occupation.

The original will gifted the property solely to this relative but this will was disputed by other relatives. A Supreme Court Order was issued in late 20XX to resolve this dispute. The court ordered the property sold; with a specified quantum being provided to the resident relative, and the balance to be equally split between all other relatives.

The court also ordered that the resident relative be given a right of residence in the property for a period of XX months after the date of the order i.e. until early in 20YY.

It was not possible to transfer the resident relative to other accommodation until late 20YY, considerably after a right of residence had expired. This situation proved unavoidable as the relative had minimal funds and other difficulties arose.

It was only when this resident relative was able to be moved to other accommodation that the house could be offered for sale.

Once the house was available for sale it was then necessary to engage real estate agents. Given the condition of the property it was also necessary to also engage various contractors to inventory household contents, clear saleable contents, remove and dispose of non-saleable contents, clean the house, attend to necessary gardening tasks and thus prepare the house for sale.

Once all necessary tasks were completed, the property was listed for sale in early 20XX. A contract to purchase the property was signed in Autumn 20XX. Settlement took place shortly after this date.

The property has never been rented during its ownership by the deceased or in the period after his demise and before settlement.

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 on or after 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 mid-20XX.

The delay was predominantly due to the legal dispute between the relatives and another delay caused by the difficulty providing new accommodation for a resident relative. 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 being beyond the control of the Executors.

The Commissioner accepts that the legal dispute between the relatives was an event beyond the control of the Executors. He further accepts that providing new accommodation for a person in difficult circumstances is also an event beyond the control of the Executors.

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 XX XXXX 20XX.