Private ruling: Capital gains tax - deceased estate - Commissioner's decision to extend the two year period - main residence exemption
Published: March 2014
Ruling period: To a specified date
Date scheme commenced: 1 July 2012.

Ruling: Q1: Will the Commissioner exercise 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 deceased acquired a property which was their main residence for their entire ownership period. The deceased passed away almost two years ago. The deceased's children, you and child A are the executors of the deceased's estate. All decisions pertaining to the deceased's estate according to his will have been joint decisions and one executor could not act without the involvement of the other. Following the deceased death accesses to the property was restricted pending action being taken to address previously known OH&S safety concerns that included loose and broken asbestos throughout the property and unstable building infrastructures. This significantly delayed you and child A's ability to progress with the disposal of the property. At the time of the deceased's date of death, their grandchild (grandchild A), was still undergoing treatment for a medical condition that been diagnosed more than two years ago. Grandchild A's health declined further during the following year with the cause of their ill health remaining unidentified for several months despite a barrage of tests and procedures. Towards the end of the same year, grandchild A was diagnosed with a disease and a stringent regime of weekly injections and medications were prescribed. Grandchild A continued to experience health problems which resulted in an admission to a hospital the following month. Last year exploration of grandchild A's medical problems continued with further tests. Grandchild A was required to visit their general practitioner (GP) on a regular basis. Last year grandchild A came under the care of a specialist who had diagnosed them with a medical condition. Shortly after grandchild A has undergone a range of medical procedures and tests in order to identify the underlying cause of the medical condition and whether it stems from a potentially disabling disease. Grandchild A is to undergo further tests in a hospital in the coming weeks. You are now in retirement receiving a pension for medical disorder and other ailments. You are responsible for overseeing grandchild A's medical treatments and you accompany them to all medical appointments. You transport grandchild A to and from school as well as the preparation of food and their regime of medications. Grandchild A's ongoing health concerns have caused you a great deal of and stress and have restricted your capability both time and emotion-wise to deal with the deceased estate's matters. Child A has also encountered a number of issues which has hampered their ability to deal with the deceased estate's matters. You have requested a three month extension to the two year period (a specified date) to dispose of the property. You have provided documentation to support your application and this documentation is to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision: Summary: A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a capital gains tax event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: • who occupied the dwelling after the date of the deceased's death, or • whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: • the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: • the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) • an individual who had a right to occupy the dwelling under the deceased's will, or • an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or • your ownership interest ends within two years of the deceased's death. In your case, when the deceased died, an interest in the property passed to you. The property was the deceased's main residence prior to death, and at that time, was not being used to produce assessable income. However, the property was not occupied by a relevant individual after the deceased's death and therefore this basis of exemption is not available. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. The property sale settled more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied. However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. 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 (for example: 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. The delay in disposing of the property was due to you being unable to attend to the deceased estate due to serious personal circumstances arising during the two year period. In determining whether or not to grant an extension the Commissioner is also 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 able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until a specified date.