Private ruling: Capital gains tax and main residence exemption of a deceased estate
Date of advice: 8 February 2018
Published: June 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA1997) in relation to the property and allow an extension of time to the two year period? | A1: No.

Relevant facts and circumstances: The deceased owned the property. The land is approximately XXX square metres under the current planning rules this precludes building or living on the land. The deceased purchased the property. The deceased inhabited a demountable on the property with no power, no water and no sewerage. The land was not used for any income producing purposes. No one resided at the property since deceased passed. The Equity Division of the Supreme Court of NSW granted Letters of Administration for the deceased’s estate to the ex-spouse. The property was subsequently put on the market and sold

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Section 118-115 | Income Tax Assessment Act 1997 Section 118-160 | Income Tax Assessment Act 1997 Subsection 118-195

Reasons for decision: Summary: Subsection 118-110(1) of the Income Tax Assessment Act 1997 ITAA 1997 provides that a capital gain or capital loss made by an individual from a capital gains tax (CGT) event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period. Subsection 118-195(1) of the (ITAA 1997) allows the trustee of a deceased estate to disregard any capital gain or loss made from a CGT event that happens in relation to a dwelling that a deceased person acquired before 20 September 1985 if: (a) the trustee's ownership interest in the dwelling ends within two years of the deceased's death, or (b) from the deceased's death until the trustee's ownership interest ends, the dwelling was the main residence of one or more of the following persons (i) the spouse of the deceased immediately before death; or (ii) an individual who had a right to occupy the dwelling under the deceased's will; or (iii) an individual who brought about the CGT event and the ownership interest in the dwelling passed to that individual as beneficiary. The meaning of dwelling is defined in Section 118-115 of the ITAA 1997 as any building, or part of a building, that consists mainly of residential accommodation and the land it is built on. The main residence exemption can also be chosen for a CGT event that happens to vacant land after a dwelling that is your main residence is accidently destroyed, per section 118-160 of the ITAA 1997. In your case, there was no dwelling on the land when the land was sold for the main residence exemption to apply to, as per the meaning of dwelling in Section 118-115 of the ITAA 1997. Although the main residence exemption can apply to vacant land after a dwelling that is your main residence is destroyed, your dwelling is not considered to be accidentally destroyed and was sold as vacant land with shipping containers. The contract of sale entered into was for the sale of land with the only improvements listed on the contract as two shipping containers. The zoning on the land precludes building a residence or living on the land. As there is no dwelling on the vacant land nor had it been destroyed, it is the Commissioner’s view that the sale was for vacant land which is not exempt from Capital gains tax