Private ruling: Capital gains tax - deceased estate
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: No

Relevant facts and circumstances: The deceased's will left the assets of their estate to their children. At the time of his/her death, the deceased lived in the family home (the property). Two of his/her children also lived at the property as they provided ongoing care and support to the deceased prior to their death. The deceased's children continued to live in the property following the deceased's death. The will did not specifically provide any beneficiary with a right to occupy the property. There has been some friction between the deceased's children in relation to the finalisation of the estate due to both an attachment to the property and the difficulty in finding affordable accommodation. The executor of the estate immediately prepared the property for sale following all of the beneficiaries moving out. The condition of the property at this time was poor due to structural damage from soil movement and wear and tear. No income has ever been generated by the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-195(1)

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 the property passed to the legal personal representative. The property was not used to produce assessable income and it was their main residence just before their death. You will only be able to disregard the capital gain from the sale of the property if the Commissioner extends the time period in which you can dispose of the property. 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, two of the deceased's children continued to reside in the property for a significant time following the deceased's death. There was no right to occupy the property granted under the will; they lived there under an informal arrangement. While we appreciate the fact that the executor was prevented from disposing of the asset until the deceased's children vacated the property, we do not consider that this would constitute a serious or unforseen circumstance. In this case, there was no dispute over the ownership of the property. The friction arose between the beneficiaries as a result of the decision of whether to dispose of the property and when. Having considered the relevant facts, the Commissioner will not apply his discretion under subsection 118-195(1) of the ITAA 1997 to allow an extension to the two year time limit.