Edited version of private advice

Authorisation Number: 1051737664082

Date of advice: 17 August 2020

Ruling

Subject: Capital gains on deceased estate

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 until settlement?

Answer

Yes

This ruling applies for the following periods:

Year Ended 30 June 2018

Year Ended 30 June 2019

Year Ended 30 June 2020

The scheme commences on:

25 February 2018

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased and her husband (now deceased) settled on the purchase of the property, on XX X 19XX.

The deceased and her husband then moved into the property immediately after settlement.

The deceased and her husband both owned the property via shares in company X, which gave the right to occupy the specific unit. Company X held the actual certificate of title of the property.

The deceased's Husband passed away on X XX 20XX.

All shares and therefore rights to occupy the unit pertaining to the deceased's husband were transferred to the deceased upon his death. The deceased became the sole owner from this point forward.

The unit was the principle place of residence of the deceased from XX X 19XX.

The deceased being placed into an age care home in mid 20XX.

The deceased passed away on the XX X 20XX.

The unit was rented from X 20XX to September 20XX when scaffolding which was wrapped in plastic made the unit unsuitable for habitation.

Major remediation work on the building was conducted on the building during 20XX up until early 20XX. During most of this period (X 20XX until December 20XX) the company suspended share transfers, therefore stopping any sales of units. The remediation and replacement of the balconies was required (by direction) due to concerns over safety and structural integrity.

The building of which the unit was a part of was under the company title until X 20XX.

Conversion from Company Title to Strata Title occurred on the XX X 20XX.

Once the property was transferred and made available in the names of the executors, the property was ready for sale.

The unit was sold with contracts being exchanged on the X X 20XX with final settlement occurring on the XX X 20XX.

The unit was sold for $XXXX as per the settlement document dated XX X 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 section 118-195

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

Reasons for decision

Under section 118-195 Income Tax Assessment Act 1997(ITAA 1997), a full exemption can apply on sale of a dwelling inherited from a deceased individual if the property was the deceased's main residence just before their death and was not being used to produce income at that time and either:

§  the property is sold within 2 years of the date of death (the Commissioner can extend this period); or

§  the property has been the main residence of the deceased's spouse, someone granted a right to live in the property under the terms of the deceased's will or the individual beneficiary who is selling the property from the date of death until the property is sold.

Furthermore, on 27 June 2019, the Commissioner introduced Practical Compliance Guideline PCG 2019/5 which provides the executor with a safe harbour where the deceased's property cannot be sold and settled within 2 years of the deceased's death.

In certain circumstances you're exempted from capital gains tax (CGT) on an inherited dwelling if you dispose of your ownership interest within two years of the person's death.

You can apply to us to extend the two-year period. Generally, we would grant the extension if the delay is due to circumstances outside your control, such as:

§  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)

§  settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary's or trustee's control.

Absence rule

Section 118-145 of the ITAA1997 provides that if a dwelling was your main residence, you may continue to treat it as your main residence. If you use your main residence to produce assessable income, the maximum that you can treat it as your main residence is six years. If you make the choice to treat the dwelling as your main residence whilst you are absent, you may not treat any other dwellings as your main residence whilst you choose to use the absence exemption in section 118-145 of the ITAA 1997.

The property continued to be the main residence of your mother prior to its sale. The property was rented out for a period of time, this period of time was less than six years and the absence rule will apply. Accordingly, the property can be treated as the deceased main residence for capital gains tax purposes for your entire period of ownership and you can disregard the capital gain made on its disposal.

Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time with regards the treatment of Capital Gains Tax. Further information about this discretion can be found by searching 'QC 52250' on ato.gov.au