Edited version of private advice

Authorisation Number: 5010090412407

Date of advice: 17 February 2023

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section 118-195 of ITAA 1997 to allow an extension of time for you to dispose of your ownership interest in the dwelling situated at XXXXXXXXXXX State XX and disregard the capital gain or capital loss you made on the disposal?

Answer

Yes.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

14 December 20XX

Relevant facts and circumstances

XXXX Limited is the Executor for the Estate.

The Testator passed away on XXX XXX.

Probate was granted on XXX proving the Will dated XXX.

The Estate consists of a property situated at XXXX (the property).

The late XX purchased this property solely on XXX (pre‐CGT).

The property is less than 2 hectares in size.

The Testator's spouse, XXX held a life interest in the above‐mentioned property under the Will.

The Will provides:

'The Beneficiary is:

"To have full use occupation and enjoyment thereof or the rents and profits therefrom during their lifetime".

a)    Pays all rates, taxes, and other outgoings of a recurring nature in respect thereof and keeps all improvements thereon insured for their full insurable value against loss or damage;

b)    maintains my property in good and tenantable repair to the satisfaction of my Trustee in all respects;

c)    does not re-marry;

d)    does not in the opinion of my Trustee commence to live with another on a domestic basis as if they were married although not married (and the decision of my Trustee on this matter shall be in its absolute discretion and final and binding on all the beneficiaries of my estate);

Upon cessation of the life interest (either at the time the Beneficiary relinquishes their rights, breaches conditions set out in the Will or passes away), the property was to be sold, with proceeds distributed between the remaining beneficiaries.

The Beneficiary resided in the property from the time of the Testator's death up until around XXX, when they moved into an aged care facility due to ongoing health issues.

Prior to moving into aged care, the Beneficiary, and their child, who was the Beneficiaries sole carer lived in the property.

The Beneficiary did not have an ownership interest in another property and used this property as a main residence continuously until they moved into aged care.

From the date that the Beneficiary moved out of the property until the property was sold, the property was not income producing nor was it available for rent. The carer continued to reside in the property in order to continue to maintain it.

Although the Beneficiary was no longer residing in the property, they continued to treat it as their main residence and had not established another main residence elsewhere.

The Beneficiary passed away on XXX.

XXXX Limited then arranged for the mortgage to be discharged by the Bank and organised a clean of the property.

Once the above duties were carried out, the real estate agent were engaged on XXX to market the property and arrange the auction for it.

The auction of the property was scheduled for XXX and the property was subsequently sold on this date.

Settlement of this property occurred on XXX.

The property was the Testator's main residence from that time until their date of death XXX.

The Beneficiary has used the beneficial interest in the property (ie: the life interest that was created when the Testator passed away) as their main residence continuously until they moved to the nursing home due to ill health and old age.

Had it not been for the Beneficiary deteriorating health, they would not have been required to enter into an aged care facility.

At no point was this property used for income producing purposes by the testator, the Beneficiary or the trust after the Beneficiaries death. The entire property was used as the main residence by the Beneficiary up until they passed away.

Detailed Reasoning

Subsection 118-195(1) of theITAA 1997 allows a Taxpayer to disregard a capital gain or capital loss if:

a)    you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as a Trustee of a deceased estate; and

b)    at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.

Column 2 of item 2 it states:

'the deceased acquired the ownership interest before 20 September 1985.'

Paragraph (b) of column 3 at item 2 it states:

'(b) an individual who had a right to occupy the dwelling under the deceased's will; or

Column 3 of Item 1 states:

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

PCG 2019/5 at paragraph [1] relevantly states:

'section 118-195 disregards capital gains and capital losses made from certain CGT events that happen in relation to a dwelling that:

•         was a deceased person's main residence and was not being used to produce assessable income just before they died, or

•         was acquired by the deceased before 20 September 1985.'

PCG 2019/5 at paragraph [12] also relevantly states the following is a consideration in relation to disregarding the capital gain or capital loss from a CGT event:

•         a life tenancy or other equitable interest given in the Will delays the disposal of the dwelling.

The Taxpayer meets the requirements of item 2 column 2 of the table in subsection 118-195(1)(b) of the ITAA 1997 to disregard the capital gain or capital loss from a CGT event up until the date of death of the life interest Beneficiary.

In relation to the period between the date of death of the life interest Beneficiary X month 20XX and the settlement of the property XX month 20XX during which time Item 2, column 3 of 118-195(1)(b) is not satisfied because the dwelling was not the main residence of the individual listed in item 2, column 3 of 118-195. The Commissioners will exercise his discretion to allow an extension of time to dispose of the ownership interest in the property and disregard any CGT gain or loss in relation to the disposal of the Property.

Terms of the Will

The Trustee at no time in their 'absolute discretion' under the terms of the Will:

•         determined that the Beneficiary had ever breached the terms of the Will

•         that the Beneficiary had ever ceased to use the property as their main residence.

Conclusion

The Commissioners will exercise his discretion to allow an extension of time to dispose of your ownership interest in the property and disregard any CGT gain or loss in relation to the disposal of the Property.

Relevant legislative provisions

Item 2 columns 2 and 3 of subsection 118-195(1)(b) of the Income Tax Assessment Act 1997

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

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

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