Private ruling: Capital gains tax - deceased estate
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: 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? | A1: Yes

Relevant facts and circumstances: The main asset of the deceased's estate was the property. The deceased had owned the property since prior to 1985. The executors of the estate had attempted to find a buyer for the property; however this was made difficult due to a number of negative attributes of the property. After seeking advice from property professionals the executors decided to assess the possibility of selling the property to a developer as a parcel with three adjoining properties. The owners of all of the relevant properties agreed to accept an offer. A contract was signed with an agreed settlement date that fell within two years of the deceased's estate. On the final day of the due diligence period, the purchasers advised that they would only proceed with the purchase if the settlement period be extended to a date that was more than two years after the deceased's death. The executors of the estate contacted the purchaser to request the original settlement date be kept, however the purchasers advised they were willing to walk from the contract if the revised settlement was not accepted. The executors had not received any offers to purchase the property as a standalone property. The only offers received were from developers to buy the property with the adjacent properties. Accordingly, you agreed to the revised settlement terms. For a period of time, one of the deceased's children had been living in the property. Nominal rent was paid to the estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: As per subsection 118-195(1) of the 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 this case, when the deceased died the property passed to the legal personal representatives. The property was acquired by the deceased prior to 20 September 1985. 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: • 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. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit.