Private ruling: CGT - deceased estates - (2 year discretion)
Published: May 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Question and answer: | Will the Commissioner exercise his discretion to extend the 2 year period for the exemption from CGT for main residence acquired from a deceased person? | Yes.

Relevant facts and circumstances: The deceased owned a residential property. The property had always been the family home and the deceased resided in the property as their main place of residence up to the date of their death. The deceased passed away. You and your sibling were the beneficiaries of the deceased's estate. Due to personal circumstances both you and your sibling were not emotionally or physically able to prepare the property to be disposed of. After a period, the property was finally able to be placed on the market. After a series of setbacks that were beyond you and your sibling's control, a contract for the disposal of the property was finally signed and settlement occurred. From the date of the deceased's death until settlement the property was unoccupied and was not rented 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. In your case, it is acknowledged that the property was not disposed of within 2 years of the deceased's passing due to unforeseen and serious personal circumstances of both you and your sibling that arose. Further settlement of a contract of sale over the property was delayed due to circumstances beyond both you and your sibling's control. In this case the Commissioner considers it appropriate to exercise his discretion to extend the 2 year period for the exemption from CGT.