| Disclaimer You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1052154623213
Date of advice: 15 August 2023
Ruling
Subject: CGT - deceased estate
Question
Will the Commissioner exercise the discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time so that the capital gain made on disposal of the dwelling can be disregarded?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The deceased passed away on xx Month 20xx
The deceased left a will dated xx Month 19xx
The deceased's children (child A, child B and child C) were made equal beneficiaries
Child A was made executor
Probate was granted on xx Month 20xx
The dwelling was less than two hectares in size
The dwelling, Property, was purchased in 19xx by the deceased's spouse
The deceased's spouse passed away on xx Month 19xx
The deceased became the full owner of the dwelling on xx Month 19xx
The dwelling was the main residence of the deceased before passing
The deceased had knee surgery in 20xx and went to stay with child A in city to recover
The deceased's health declined from 20xx while staying with child A, which included dementia
The deceased had a stroke in 20xx and passed away later in a city Hospital
The deceased was not in a clear mind capacity to make any legal decisions which included changes to the will
Child B lived in the dwelling for over 50 years until going into palliative care in Month 20xx
The deceased verbally told child A, child B and child C that child B is to remain living in the dwelling indefinitely. This was not noted in the will
Child B has been ill with different cancers since 20xx, and has been looked after by cancer services at local hospitals
At the time of the deceased's passing, child B was on the aged pension
Child A travelled from city to city on xx Month 20xx until xx Month 20xx to assist with child B's care, find a care facility for child B and clean the dwelling for sale
The dwelling needed to be sold as soon as possible to assist with the finances for child B's care
Child A, child B and child C as beneficiaries, sold the dwelling as tenants in common
Sale of the dwelling settled on xx Month 20xx
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-195
Reasons for decision
Dwelling acquired from a deceased estate
Section 118-195 of the ITAA 1997 provides a full CGT exemption for capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied.
A full exemption is available if at least one of the items in column 2 and at least one of the items in column 3 of the table in subsection 118-195(1) of the ITAA 1997 are satisfied.
Table: Beneficiary or trustee of deceased estate acquiring interest
|
Item |
One of these items is satisfied |
And also one of these items |
|
1 |
the deceased acquired the ownership interest 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 |
your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner |
|
2 |
the deceased acquired the ownership interest before 20 September 1985 |
the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of: a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or b) an individual who had a right to occupy the dwelling under the deceased's will; or c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary- that individual. |
Extending the 2-year limit
The Commissioner has discretion to extend the two-year time period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased's death. This discretion may be exercised in situations such as where:
1) the ownership of a dwelling or a will is challenged;
2) the complexity of a deceased estate delays the completion of administration of the estate;
3) 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
4) Settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
These examples are not exhaustive but provide guidance on what factors the Commissioner would consider reasonable to exercise his discretion to extend the two-year period to dispose of an inherited property.
Whether the Commissioner will exercise his discretion under section 118-195(1) of the ITAA 1997 will depend on the facts of each case.
PCG 2019/5 provides other factors that may be relevant to the exercise of our discretion included but are not limited to:
• the sensitivity of your personal circumstances and of other surviving relatives of the deceased
• the degree of difficulty in locating all beneficiaries required to prove the will
• any period the dwelling was used to produce assessable income, and
• the length of time you held the ownership interest in the dwelling.
Detailed reasoning
Child B had been living in the dwelling for over 50 years.
Child A and child C allowed child B to continue to live in the dwelling after the deceased passed away on xx Month 20xx.
The deceased verbally voiced their wishes to the three beneficiaries (child A, child B and child C), that child B was to stay living in the dwelling indefinitely. Due to dementia, the deceased was unable to care for themself or make any changes to legal documents.
Child B has been unwell with different cancers since 20xx.
At the time of the deceased passing in 20xx, child B was on the age pension.
On xx Month 20xx, child A went to stay at the dwelling to help care for child B and help find a care facility, as child B's cancer had become terminal. Child B went into palliative care in Month 20xx. Child A stayed at the house to prepare it for selling, as child B needed financial assistance for care. The dwelling sale settled on xx Month 20xx.
To disregard any capital gain, it must be shown that the executors/beneficiaries' ownership interest ends within two years of the deceased's death or within a longer period allowed by the Commissioner, as prescribed by item 1 in column 3 of the table in subsection 118-195(1) of the ITAA 1997.
Since the sale of the dwelling was settled more than two years after the date of the deceased's death, a full CGT exemption is available only if the Commissioner applies his discretion and allows a longer period.
We acknowledge and appreciate the circumstances; it was ultimately the decision of the beneficiaries when the title of the property had been transferred to them, to allow child B to continue to reside in the dwelling and to not sell the property within the two-year period after the deceased passed away.
The Commissioner, in your case, has considered the sensitivity of your personal circumstances.
Child B's health circumstances were unforeseen and were serious personal circumstances which delayed in the selling of the property.
Having considered the relevant facts, the Commissioner is able to apply the discretion under section 118-195 of the ITAA 1997 and allow an extension of time to the two-year period.