Private ruling: CGT - deceased estate - disposal of property
Date of advice: 7 November 2017
Published: March 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the two year time period for disposal of the deceased’s ownership interest in the property, until XX August 20XX? | A1: Yes | Q2: Will there be a capital gains tax (CGT) consequence on the disposal of the property in relation to the interest in the property you acquired from D? | A2: Yes

Relevant facts and circumstances: D acquired a property (the property) before 20 September 1985. The property was D and their spouse, M’s main residence since acquisition. D died intestate on XX October 20XX. The Public Trustee administered D’s estate and the property as divided equally between M, S and yourself, with a one third interest in the property distributed to each. M (the deceased) continued to live in the property until their death on XX August 20XX. The deceased’s Will left their third interest in the property to be distributed equally between S and yourself as beneficiaries of the estate. The property was placed on the market and a contract of sale was signed on XX August 20XX, with settlement occurring on XX August 20XX. The property remained vacant from the deceased’s death.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-195(1) | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985, or ● the property was acquired by the deceased 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, and ● your ownership interest ends within 2 years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the deceased’s interest in the property was acquired after 20 September 1985, at the time of D’s death and was their main residence before their death. The property was not sold within 2 years of the deceased’s date of death. You will only be able to disregard the capital gain from the sale of the deceased’s interest in the property if the Commissioner extends the 2 year time period. The Commissioner can exercise his discretion in situations such as where: ● 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 circumstances outside the beneficiary or trustee’s control Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until XX August 20XX. A capital gain or a capital loss may arise if a capital gains tax event (CGT event) happens to a capital gain tax asset (CGT asset). Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset is any kind of property, or a legal or equitable right that is not property. CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). In your case, your share in the property acquired from your parent’s estate would be considered a CGT asset. CGT event A1 occurred on the date the contract of sale for the property was signed. A capital gain or loss was made at that time. As M continued to live in the property until the time of their death you would be entitled to a partial exemption for deceased estate dwellings under section 118-200 of the ITAA 1997.