Private ruling: Deceased estate - capital gains tax
Published: November 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

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's will left the property to you and your sibling. Your sibling lived with the deceased in the property before the deceased went into a nursing home and continued to live there following the deceased's death. The deceased made the choice under section 118-145 of the ITAA 1997 to continue to treat the property as their main residence after they moved to a nursing home. The property was not used to produce assessable income. Your sibling subsequently passed away without a will. You were unable to proceed with the disposal of the property until Letters of Administration were granted for your sibling's estate. Your sibling's spouse was living in the property and mediation was required to determine if they were entitled to your sibling's share of the property. The outcome of mediation was that your sibling's spouse would pass over her half of the property for consideration of $X. You placed the property on the market immediately following the finalisation of mediation.


Reasons for decision: Summary: As per subsection 118-195(1) of the 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 died an interest in the property passed to you as a beneficiary. The property was not used to produce assessable income and as a result of the choice under section 118-145 of the ITAA 1997, it was the deceased's main residence just before their death. The following is a non-exhaustive list of situations in which the Commissioner would be expected to exercise the discretion: • 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, you were unable to finalise the disposal of your interest in the property you acquired from the deceased's estate due to the unforseen circumstance of your sibling's death. The fact that your sibling died without a will caused further delays. Having considered the relevant facts, and the period of time in question, 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.