Private ruling: CGT - Deceased Estates
Published: May 2013
Ruling period: Year ended 30 June 2013.
Date scheme commenced: 1 July 2012.

Ruling: Question and answer | 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? | Yes.

Relevant facts and circumstances: The deceased purchased a dwelling prior to 20 September 1985. The dwelling was their main residence. In 200X, due to the ill health of the deceased, a relative, who was also a beneficiary of the deceased's estate, moved into the dwelling to assist the deceased in a carer capacity. The beneficiary remained in the dwelling until late-20YY to maintain the dwelling. Shortly before their death the deceased was moved into an aged care facility. Probate was granted over the deceased's estate in 200Z. A valuation of the property was made by the Valuer General at this date. In the 19VVs, the deceased's then spouse, lodged a caveat claiming an ownership interest in the dwelling. The subject matter of the caveat was not settled during the divorce, and a property settlement was never finalised. The administration of the estate was placed on hold until the caveat was removed and the dwelling could be sold. In the relevant year, the deceased's former spouse commenced courts proceedings claiming an interest in the dwelling pursuant to the caveat. The court proceedings were finalised and the dwelling sold, with settlement effected early in the subsequent year. The dwelling was sold more than two years after the deceased's death.


Reasons for decision: Detailed Reasoning - Summary:: The Commissioner will exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension to the two year time limit. | Detailed Reasoning - Ruling:: Pursuant to 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 an 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 died, the dwelling passed to the executor of the estate. The dwelling was acquired by the deceased prior to 20 September 1985 and it was their main residence prior to the death. The dwelling was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, the estate will only be able to disregard the capital gain from the sale of the dwelling if the Commissioner grants an extension to the two year time limit. The following list, as contained in the explanatory memorandum to the Tax Laws Amendment (2011 Measures No. 9) Act 2012, highlights some of the factors the Commissioner may consider in exercising the discretion to extend the two year time limit: · 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 (e.g. 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. | Detailed Reasoning - Application to your circumstances:: In this case, the listing of the dwelling for sale was delayed due to a number of factors; · In the deceased's then spouse lodged a caveat claiming an ownership interest in the dwelling; · The subject matter of the caveat when the deceased and the deceased's former spouse divorced, and a property settlement for the divorce was never finalised; · Probate was granted over the deceased's estate in 200Z, however the dwelling could not be sold until the caveat was removed; · In the relevant year, court proceedings were commenced by the former spouse claiming an interest in the dwelling pursuant to the caveat; and · The court proceedings were finalised and the dwelling sold, with settlement effected early in the subsequent year. · The dwelling was sold more than two years after the deceased's death. 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.