Edited version of private advice

Authorisation Number: 1051780983810

Date of advice: 19 November 2020

Ruling

Subject: Capital gains tax - inherited dwelling

Question 1

Will the Commissioner allow you a longer period for the disposal of your half interest in the Property inherited from your sibling, until XX XXXX 20XX?

Answer

Yes

Question 2

Will the Commissioner allow you a longer period for the disposal of your half interest in the Property inherited from your parent, until XX XXXX 20XX?

Answer

No

Question 3

Does the Commissioner accept that your sibling had a right to occupy the Property under your parent's will such that under section 118-195 of the Income Tax Assessment Act 1997 you can disregard the capital gain you made from the disposal of your half interest in the Property inherited from your parent?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

XX XXXX XXXX

Relevant facts and circumstances

The Property was purchased by your parent in XXXX 19XX.

The Property was your parent's main residence up until they passed away on XX XXXX 19XX.

The Property was left to yourself and your sibling in 2 equal shares under your parent's will.

Your sibling also lived in the Property with your parent at the time your parent passed away.

At the time of your parent's death, your sibling was cohabiting with and depended upon your parent and had the right to claim for further provisions from the estate.

By informal arrangement with you, your sibling continued to live in the property until they passed away on XX XXXX 20XX.

There was no provision in your parent's will giving your sibling a 'right to occupy' the Property.

Your sibling died intestate, and Letters of Administration were granted to the State Trustees almost two years after your sibling passed away.

The property was your sibling's main residence at the time of their passing.

In the course of administration of your sibling's estate by the State Trustees, sole ownership of the Property was transferred to you on XX XXXX 20XX.

The Property never produced income for yourself, your parent or your sibling.

The Property was sold by contract on XX XXXX 20XX, and the sale of the Property settled on XX XXXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 paragraph 118-195(1)(b)

Reasons for decision

The half interest inherited from your sibling

Regarding the portion of the property you inherited from your sibling, circumstances outside your control prevented you from selling it within the two year period set out in column 2 of the table in paragraph 118-195(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997).

The delay was due to your sister passing away intestate and Letters of Administration were not granted to the State Trustees until almost two years after she passed away.

The Property was not transferred to you until XX XXXX 20XX, at which time you put it on the market and the Property was sold by contract on XX XXXX 20XX, and the sale of the Property settled on XX XXXX 20XX.

Having regard to all the circumstances, the Commissioner considers it reasonable to allow further time to dispose of this ownership interest, until XX XXXX 20XX.

The half interest inherited from your parent

Your contentions

Regarding the portion of the Property you inherited from your parent, you are seeking further time to dispose of the Property due to your sibling, being a beneficiary of your parent's estate, living in the Property until they passed away.

Alternatively, you are seeking for your sibling to be treated as an individual who had a 'right to occupy' for the purposes of item 2(b) in column in 3 of the table in paragraph 118-195(1)(b) of the ITAA 1997.

Reasoning - first contention

Addressing your first contention, even if your sibling was a dependant of your parent, and had rights for further provisions if they were to challenge the will, this does not mean that they would necessarily have been given a right to occupy the dwelling which would have prevented you from disposing of your share of the inherited dwelling. It was your choice to allow your sibling to use your share of the inherited dwelling rather than pursue any options to dispose of your share.

Your circumstances do not meet the criteria regarding safe harbour or extending the two year period, set out in Practical Compliance Guideline PCG 2019/5 The Commissioner's discretion to extend the two year period to dispose of dwellings acquired from a deceased estate (PCG 2019/5).

Therefore, the Commissioner's discretion to extend the two year period will not be exercised in regards to the portion of the Property you inherited from your mother.

Reasoning - second contention

The table in paragraph 118-195(1)(b) of the ITAA 1997 sets out that if an individual has a 'right to occupy' the dwelling under the deceased's will, then you will be able to claim the main residence exemption and the gain will be disregarded.

However, in your circumstances your sibling did not have a 'right to occupy' the Property under your parent's will, and there is no evidence if they challenged the will that they would have been granted a 'right to occupy' the Property. Without any evidence your sibling would have been given a 'right to occupy' the premises, we cannot assume they would be given this.