Private ruling: Capital gains tax - deceased estate - Commissioner's discretion - two year period
Date of advice: 17 March 2016
Published: May 2016
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

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 until settlement? | A1: Yes.

Relevant facts and circumstances: The deceased acquired a dwelling prior to 20 September 1985 (the dwelling) The deceased passed away in 20XX (the deceased) The executors of the estate are a professional trustee organisation. Title to the dwelling was transferred to the beneficiaries in 20XX. The dwelling was the deceased's main residence. The dwelling was also occupied by a permanent carer, ('A'). The deceased requested her beneficiaries to allow 'A' to remain in the dwelling after their death. The deceased did not provide a right to occupy or a life interest in their will to 'A'. The Public Trustee was appointed Plenary Administrator for 'A' around 20XX. 'A' obtained a placement in an assisted living facility. The dwelling was prepared for sale and settlement occurred a short time later.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Reasons for decision: Summary: A capital gain or capital loss may be 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 and a beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. For a dwelling acquired by the deceased prior to 20 September 1985, 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 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 the CGT event was brought about by that person, or • your ownership interest ends within two years of the deceased's death. In your case, when the deceased died, an interest in the dwelling passed to you. The dwelling was the deceased's main residence prior to death, and at that time, was being used to produce assessable income. However, the dwelling 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 dwelling 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. 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. You were unable to dispose of the dwelling within the time required as the deceased's former carer was residing in the dwelling and it was the deceased's request that the carer be permitted to continue to reside in the dwelling. 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 will apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension to the two year time limit until settlement in 20XX.