Private ruling: Capital gains tax - Deceased estate - extension of two year rule - disposal
Published: April 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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? | A1: Yes.


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

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (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 passed away, the property passed to the executors of the estate. The two year time period to dispose of the property expired on day month 20XX. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion to extend the time period in which you can dispose of the property: · 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, the delay was caused by the complexity of the deceased's estate as well the will being challenged. This prevented the executor from disposing of the property within the two year time limit. 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 to the settlement of the contract of sale. As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA 1997. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property

The deceased passed away after 20 September 1985. | The deceased left a will, with a number of main beneficiaries who are children of the deceased. | The estate consisted of a house and some investments. | The deceased's relative, (Relative A) suffered a medical issue prior to the deceased's death, which resulted in health complications. | The deceased's will provided that Relative A share was to be put in trust, with another relative to be appointed as the trustee in order to administer relative A share for their welfare and comfort during their lifetime. | The will also included further direction regarding that in the event of relative A death, any residual balance held in the trust account to form part of the residue of the deceased's estate. | Relative A was admitted to a nursing home after a period of time. | Relative A spouse commenced legal proceedings, challenging the deceased's will a short time later. | The proceedings were finalised after a period of time. During the proceedings the deceased's property was unable to be sold. | Relative A commenced legal proceedings after a period of time for a property settlement under the Family Law Act 1975 claiming that the proceeds of the testamentary trust was part of the shared matrimonial property. | Advice was received that until the legal proceedings were resolved, the property of the deceased should not be put on the market. | The legal proceedings were resolved at mediation after a period of time. | The property has been sold.