Private ruling: CGT deceased estate
Date of advice: 16 January 2019
Published: May 2019
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year period under section 118-195 of the Income Tax Assessment Act 1997 for a property situated at X M Street, Suburb A in Australia? | A1: No

Relevant facts and circumstances: The deceased died on xx xxxx 20XX. The property situated was purchased by the deceased in 19AA (before capital gains tax was introduced in Australia). The property was used as the main residence of the deceased until death. The deceased’s child resided at the property with family from before the death of the owner until the sale of the property, with settlement in 20YY There was no provision in the will to allow the property to be occupied after the death of the owner. The child had financial difficulties and with consent of the executor continued to live in the property.

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

Reasons for decision: Summary: A capital gain or capital loss is made as a result of a capital gains tax (CGT) event happening to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). The most common CGT event is CGT event A1 the disposal of a CGT asset. Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you owned a dwelling as the trustee of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property acquired by the deceased before 20 September 1985 if: ● your ownership interest ends within 2 years of the deceased death, or within a longer period allowed by the Commissioner. Or ● during the period from the date of death until the ownership interest ends, the property was the main residence of an individual who had the right to occupy the dwelling under the deceased’s will. You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). 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 (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 circumstances 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 there was a delay from the date of death to the settlement of the property in 20YY. The delay was predominantly due to the financial difficulties of one of the beneficiaries. Whilst the beneficiary and family lived at the property with the permission of the deceased, the Will did not provide authority for any occupation after the death of the owner. The Commissioner will therefore not exercise his discretion to extend the 2 year time limit to the settlement date as the circumstances relating to the delay in the sale of the property were not beyond the control of the Executors. Accordingly, the sale will not be exempt from CGT pursuant to section 118-195 of the ITAA 1997.