Private ruling: CGT on estate when life tenant surrenders interest
Date of advice: 29 October 2015
Published: October 2015
Ruling period: 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling on the property and allow an extension of time for a period of three months after the life tenant surrenders her interest? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The dwelling was purchased by the deceased before 20 September 1985, making it a pre-CGT asset. It was not the deceased's main residence. The deceased died in 198X. They left a lifetime tenancy to their associate (the tenant) and the residual interest to their children. The life tenancy is a legal interest registered on the title. The property is the tenant's main residence. They have now moved into aged care but make an absence choice to continue to treat the house as their main residence. The tenant will surrender their life interest via deed during the period of the ruling. The residual beneficiaries will sell the house as quickly as possible with settlement of the sale occurring within three months of the date that the life tenant surrenders their life interest. Assumption For the purpose of this ruling, it is assumed that the market value of the life interest will not change between the surrender date and the date of the contract for the sale of the property.

Relevant legislative provisions: Section 118-195 of the Income Tax Assessment Act 1997 . | Section 118-200 of the Income Tax Assessment Act 1997. | Explanatory memorandum to the Taxation Laws Amendment Bill (No.9) of 2011 (Cth)

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. Subsection 118-195(1) of the ITAA 1997 allows a trustee of a deceased estate to disregard a capital gain or loss from a dwelling that a deceased person acquired after 20 September 1985 if: • the dwelling was a pre-CGT asset at the time of the deceased's death; and • your ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner. In your case, the dwelling was a pre CGT asset and has not been used to produce assessable income. Although your ownership interest in the dwelling did not end within two years after the date of the deceased's death, in view of your particular circumstances the Commissioner will exercise his discretion to extend the two year exemption period until three months after the right to occupy is surrendered. The sale of the property will therefore not be subject to CGT if sold within this time. The Explanatory Memorandum for the Tax Laws Amendment (2011 Measures No. 9) Act 2012 explains the Commissioner would be expected to exercise discretion (in sections 118-195 and 118-200) in situations such as where: • 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. These examples are not exhaustive. In exercising this discretion, the Commissioner is expected to consider whether and to what extent the dwelling is used to produce assessable income and the period that the trustee or beneficiary held the ownership interest in the dwelling. | Detailed Reasoning - Application of Commissioner's discretion in your case: In your case, following the guidance in the Explanatory Memorandum, the Commissioner will exercise his discretion under section 185-195 of the ITAA 1997 on the grounds that, during the period of the estate's administration, there was a legal impediment to the sale of the property while the life interest existed. In addition the dwelling was not used to produce assessable income, you are acting to sell the property at the first opportunity available to you, and that if the Commissioner did not exercise his discretion the actual taxable gain would be small compared to the effort and expense in calculating the gain.