Private ruling: Capital gains tax (CGT) - deceased estate - Commissioner's discretion to extend the of two year period - main residence exemption
Published: February 2014
Ruling period: Year ended 30 June 2014.
Date scheme commenced: 1 July 2013.

Ruling: A1: Yes.

Relevant facts and circumstances: The deceased owned a property which was their main residence. The deceased died almost two years ago. You and your sibling are joint executors of deceased's estate. You and your sibling have worked tirelessly to get the property on the property market but you have faced a number of hurdles that has prevented its disposal as detailed below: · your sibling works shift work and you work a standard week which made it difficult to co-ordinate removing your parents' personal effects. Your parents had lived there for many years and had accumulated a large volume of personal effects · your sibling lives some distance from the property making it difficult for them to assist you with preparing it for sale · approximately 18 months ago, you became joint guardian and administrator for a number of your relatives who have a disability. This role involves regular visits to ensure that their health and wellbeing is maintained as well as their finances are efficiently managed. The deceased was assisting them but they were not formally appointed · your child required surgery approximately 12 months ago and they required significant care during the recovery period which you provided · your spouse's parent's medical condition has progressively worsened over the past number of years which has placed a significant burden on you and your spouse · you have not been able to take time off work to prepare the property for sale due to your financial circumstances, and · the deceased was in a specialised industry and they had a significant collection of containers under the house. These containers require specialist disposal. You have only recently located someone willing to accept these containers. The property is scheduled for auction next month. Settlement on the disposal of the property will occur before a specified date.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(3) | Income Tax Assessment Act 1997 section 118-195 | Income Tax Assessment Act 1997 subsection 118-195

Reasons for decision: Summary: A capital gain or capital loss is disregarded under section 118-195 of the ITAA 1997 where a capital gains tax event happens to a dwelling if it passed to you as an individual beneficiary of a deceased estate or you owned it as the trustee of the deceased estate. The availability of the exemption is dependent upon: · who occupied the dwelling after the date of the deceased's death, or · whether the dwelling was disposed of within two years of the date of the deceased's death. For a dwelling acquired by the deceased, you will be entitled to a full exemption if: · the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of the following relevant individuals: - the spouse of the deceased immediately before death (except a spouse who was living permanently separately and apart from the deceased) - an individual who had a right to occupy the dwelling under the deceased's will, or - an individual beneficiary to whom the ownership interest passed and that person disposed of the dwelling in their capacity as beneficiary, or · your ownership interest ends within two years of the deceased's death. In your case, when the deceased died, the property passed to you as a trustee of their estate. The property was deceased's main residence prior to their death, and at that time, was not being used to produce assessable income. However, the property was not occupied by a relevant individual after the deceased's death and therefore this basis of exemption is not available. Subsection 118-130(3) of the ITAA 1997 provides that where the sale or other disposal of the dwelling proceeds under a contract, the ownership interest ends at the time of settlement of the contract of sale and not at the time of entering the contract. The property sale may settle more than two years after the deceased's death, therefore, the alternative basis of exemption is also not satisfied. However, subsection 118-195(1) of the ITAA 1997 confers on the Commissioner discretion to extend the two year exemption period, thus this alternative basis of exemption in the provision may apply. 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 (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 reasons outside the beneficiary or trustee's control. The delay in disposing of the property was due to you being unable to attend to the deceased's estate due to serious personal circumstances arising during the two year period. In determining whether or not to grant an extension the Commissioner is also 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. 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 until a specified date.

Will the Commissioner exercise 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?