Private ruling: CGT - deceased estate - main residence
Published: November 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2014

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 to the settlement date of the property? | A1: Yes

Relevant facts and circumstances: The deceased died unexpectedly. At the time of their death, the property was their main residence. The property was not being used to produce assessable income. The property comprised of two titles. A local real estate agent was approached to provide an appraisal on the property and from that time on, the real estate agent was aware that the property was likely to be sold. The deceased had a close involvement with X prior to her/his death. X had expressed interest in purchasing the property and as this would result in a benefit to the beneficiaries through the saving of real estate commissions, this possibility was explored by the executor of the deceased's estate. However negotiations were unsuccessful and X formally advised that they would not be purchasing the property. The following issues also impacted the saleability of the property: • It was discovered that water tanks on the property were likely to be unsafe due to the amount of lead used in the solder. Steps were required to be taken to ensure an alternate safe water supply was provided to the property. • It became apparent that the driveway leading to the dwelling had been constructed on a separate title to the dwelling. It was of concern that this could cause access issues to the dwelling should the two titles be sold separately. To rectify this the executor initiated a boundary adjustment. The property was listed for sale with the local real estate agent who had previously completed an appraisal following the unsuccessful negotiations with X. No other offers were received on the property for some time. The purchaser's offer was subject to the completion of the boundary adjustment. A formal contract of sale for the property was signed during the 2013-14 financial year. Settlement occurred once the boundary adjustment had been completed and new titles had been issued.

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 representative. The property was not used to produce assessable income and it was their main residence just before their death. 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. In determining whether or not to grant an extension the Commissioner is 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. In this case, numerous factors impacted the saleability of the property, including the requirement for a boundary realignment. While the property was not initially listed for sale with a real estate agent, other possible purchasers had entered into negotiations that were being considered by the executor. We consider that a continuing effort was made to dispose of the property. 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.