Private ruling: Capital gains tax – main residence and deceased estate
Date of advice: 24 July 2018
Published: September 2018
Ruling period: 30 June 2017
Date scheme commenced: 01 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? | A1: No | Q2: Are you entitled to a partial main residence exemption from the date of death? | A2: 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. Your parent purchased the property and used it as his/her main residence up until their death. In xxxx, your parent’s spouse moved into the property and they were later married. The deceased passed away suddenly and did not leave a Will. Letters of administration were obtained by your parent’s spouse. Sometime after this, due to escalating tensions, you and your sibling left the dwelling but frequently visited the property to ensure it was well kept and maintained. You and your spouse made a family provision claim against your parent’s estate asking for the property to be transferred into your names. On xx xxx xxxxx, pursuant to a court order, the property was transferred to you and your sibling. Following the property transfer, your parent’s spouse continued to reside in the property rent free. Your parent’s spouse voluntarily vacated the property in xx xxx xxxx. You did not move back into the property and the property underwent repairs and maintenance. Once the repairs were completed the property was rented. You subsequently placed the property up for sale and this was sold. Prior to the sale of the property you purchased a property and commenced treating this property as your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if a dwelling passed to you as a beneficiary of a deceased estate, then you are exempt from tax on any capital gain made on the disposal of the property if: ● the property was acquired by the deceased before 20 September 1985, or ● 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 two years of the deceased’s death (the Commissioner has discretion to extend this period in certain circumstances). 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). In this case, the deceased acquired the property, as sole owner. They passed away in xxx xxxx and the sale of the property settled outside the two year period. The Commissioner can exercise the discretion to extend the two year period in situations where the delay is due to circumstances which are outside of the control of the beneficiary or trustee, for example: ● 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) ● settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee’s control. | Detailed Reasoning - Application to your circumstances: In this case, you and your sibling inherited a 50% interest each in the property. On xx xxx xxxx, pursuant to a court order, the property was transferred to you and your sibling and the property was vacated. The property then underwent repairs and the property was rented from x xxx xxxx to x xxx xxxx and was sold with an extended settlement date. From the information provided, there was nothing that prevented you from advertising the property for sale within the two year period. The ongoing delay was due to your decision to rent the property for 12 months. While we appreciate your circumstances, the decision to rent the property out for 12 months before selling was within your control. Having considered the relevant circumstances, the Commissioner is unable to exercise his discretion and extend the two year time limit in this case. | Detailed Reasoning - Question 2: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997). In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares. If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you stop living in it. If you make this choice you cannot treat any other dwelling as your main residence during the same period. If you acquire a new home before you dispose of your old one, both dwellings are treated as your main residence for up to six months if: ● you lived in your old home and it was your main residence for a continuous period of at least three months in the 12 months before you disposed of it ● you did not use it to produce assessable income (such as rent) in any part of that 12 months when it was not your main residence ● the new dwelling becomes your main residence. | Detailed Reasoning - Application to your circumstances: In your case, the property passed to you and your sibling from your parent’s estate pursuant to a court order. Subsection 128-15(2) of the ITAA 1997 states that, as a beneficiary of your parent’s estate, you are taken to have acquired the property on the date of your parent’s death. You lived in the property as your main residence from your parent’s death until xxxx when you left the property and you did not live in it again before it was sold and settled. You continued to treat this property as your main residence up until x xxx xxxx, when you purchased another property with your spouse as joint owners and commenced treating this dwelling as your main residence. Therefore you are entitled to a partial main residence exemption on the inherited property calculated as follows: Total capital gain from the CGT event X Number of days in your ownership period when the dwelling was not your main residence Total number of days in your ownership period