Private ruling: CGT - deceased estate and main residence exemption
Date of advice: 2 March 2017
Published: April 2017
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 (ITAA 1997) and allow an extension of time to the two year period? | A1: Yes.

Relevant facts and circumstances: The deceased died in January 20XX. The applicant is the beneficiary of the deceased’s estate. The estate had a single dwelling (the Property). The Property was purchased by the deceased in December 19XX and it was used as their main residence for the period of their ownership. The deceased’s will was granted probate by the Supreme Court in 20XX. The will was challenged in the Supreme Court in 20XX. The challenge proceedings were dismissed by the Court in 20XX. The Property was transferred to the applicant in May 20XX and then prepared for sale. A contract of sale for the Property was entered into in 20XX and settled in 20XX. The Property was not used to produce assessable income since the deceased died.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195; | Income Tax Assessment Act 1997 paragraph 118-195(1)(b).

Reasons for decision: Summary: Section 118-195 of the ITAA 1997 provides that a capital gain or loss you make from a capital gains tax (CGT) event that happens to a dwelling or your ownership interest in it may be disregarded if certain criteria are met. Subsection 118-195(1) of the ITAA 1997 provides that if a dwelling passes to you as a beneficiary of a deceased estate, then any capital gain (or loss) you make for a CGT event that happens is disregarded if: ● 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). In your circumstances, you acquired your interest in the Property by way of being a beneficiary in the deceased’s estate. The deceased acquired their ownership interest in 19XX and lived in it as their main residence until their death in 20XX. However, the Property did not contract for sale until 20XX and settled in 20XX, which is outside of the two years allowed under section 118-195 of the ITAA 1997. The Commissioner is granted the discretion to extend the two year period under paragraph 118-195(1)(b) of the ITAA 1997. The Commissioner can exercise his discretion in situations such as where the ownership of a dwelling or a will is challenged. In your case, proceedings were commenced in the Supreme Court in 20XX and did not conclude until 20XX. Having considered all of the factors of your case, the Commissioner is able to apply his discretion under paragraph 118-195(1)(b) and allow an extension to the two year time limit until 20XX. Accordingly, you will be able to disregard the capital gain that arose as a result of the disposal of the property in 20XX.