Private ruling: CGT - deceased estates - (2 year discretion)
Published: November 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year period to the property settlement date for the exemption from CGT for main residence acquired from a deceased person? | A1: Yes.

Relevant facts and circumstances: The Deceased purchased the property in Month 20XX. The property was part of a two lot strata scheme, with each property having 50% voting rights. The Deceased was diagnosed with a condition. As a result of professional advice, the deceased's children initiated safety items to the bottom of the common property stairs to assist the deceased to navigate the stairs safely. The owners of the second property objected to the item and responded in an abusive and threatening manner. The Deceased attempted to settle the dispute in various ways. After more than two years of difficulty with the neighbours, the deceased moved out and placed the property on the market in Month 20XX. During the open house inspections, the neighbours verbally abused the real estate agent and potential buyers. A number of buyers withdrew their accepted offers due to the difficult neighbours. The Deceased died a number of months after moving out of the property. Due to the difficulty of selling the property you engaged a real estate agent to lease the property. As you intended to sell the property at the first opportunity, the sales manager continued to have oversight of the property while it was being leased. The property was leased out to tenants but the neighbours continued their abusive behaviour. The first tenants broke their lease because the neighbours made their living intolerable. The second tenants took out a PVO against the neighbours and were advised by the police to move out. The property sold in 20XX after the neighbours sold their property and moved out.

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

Reasons for decision: Summary: Section 118-195 of the Income Tax Assessment Act 1997 (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 the dwelling was acquired by the deceased person after 19 September 1985, the dwelling was the deceased's main residence just before the deceased's death, it was not being used to produce assessable income at that time and the individual disposed of the dwelling (e.g. by sale) within two years of the deceased's death, or within a longer period allowed by the Commissioner. The Commissioner has discretion to extend the two-year time period in relation to CGT events that happened in the 2008/09 income year and later income years. The explanatory memorandum (EM) to the Bill that added the discretion to Section 118-195 of the ITAA 1997, the Tax Laws Amendment (2011 Measures No 9) Bill 2011, includes the following 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 (e.g. 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 Section 118-195 of the ITAA 1997 and allow a reasonable extension to the time limit. The period of extension has a reasonable explanation given the circumstances and an extension will be granted until the settlement date of the property.