Private ruling: CGT – deceased estate – right to reside
Date of advice: 14 January 2019
Published: April 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard any capital gain made from the disposal of the property? | A1: No

Relevant facts and circumstances: The deceased died on XX June 19XX. The deceased acquired a property (the property) prior to 20 September 1985. The property was the deceased’s main residence from acquisition to the time of their death. The deceased’s child, S lived with the deceased in the property prior to their death and continued to reside in the property after their death. Probate was granted on XX July 19XX. S refused to vacate the property and the executor commenced proceedings to evict S. S counter claimed that the deceased had promised them a life interest in the property, however there was no written evidence of this promise. The deceased’s Will did not expressly provide S with either a ‘life interest in the property’ nor a ‘right to reside’. S was bequeathed a specific amount in the deceased’s Will. In 19XX the executor made the decision to allow S to continue to reside in the property. Neither the eviction proceedings nor S’s counter claim continued after this decision was made. In 20XX, one of the 4 residuary beneficiaries contacted the executor to advise that the family have agreed that S can continue to occupy the property. There is no written agreement evidencing the decision to allow S to continue residing in the property. S continued to reside in the property until just prior to the property’s sale on XX June 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling, or your ownership interest in it, is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the 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. | Detailed Reasoning - 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 In your case, a right to reside was not expressly granted to S, nor a life interest granted under the deceased’s will. The decision to allow S to continue to reside in the property was that of the executor and later, that of the residuary beneficiaries. For the period between the death of the deceased and the sale of the dwelling, the dwelling was not ● the main residence of the spouse of the deceased, ● the main residence of an individual who had the right to occupy the dwelling under the deceased’s will, or ● your main residence. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. 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 (eg 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 reasons 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. Having considered the relevant facts, the Commissioner is not able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.