Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1:  | A1: 

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. Prior to 20 September 19XX, the deceased and their spouse jointly purchase a property, which they established as their main residence. After 20 September 19XX, as part of the deceased's property settlement and divorce they acquired their spouse's interest in the property. Approximately four years ago the deceased died. You are the executor and a beneficiary of the deceased's estate. Shortly after the deceased's death you suffered from ill health and as a result of this illness you were on sick leave for a specified period The same year your spouse was involved in a vehicle accident whilst being employed by a large organisation. The following month your medical condition flared again and you attended the emergency department of the local hospital where your condition was diagnosed and you were advised not to expose yourself to undue stress. Your spouse underwent many months of rehabilitation. Your spouse attempted to return to work early the following year but was unable to continue due to the injuries they sustained in the accident. The other beneficiary of the deceased estate suffered a number of medical conditions during a specified period which affected their ability to deal with the disposal of the property. Approximately 18 months after the deceased's date of death the property was listed with a local real estate agent but it failed to attract a buyer as offers received were well below a reasonable price for the property. The real estate agent advised you that by doing renovations to the property it would assist in securing a purchaser. Major renovations were undertaken to the property. The same year your spouse underwent surgery as a result of their accident. Your spouse's position with their employer was terminated and they commenced their own small business early the following year as a way of re-entering the workforce. The property was again listed for sale in early last year and was disposed of later in the year. The property was not used for income producing purposes. You have supplied a copy of documentation to support your application and this documentation is to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-195 | Income Tax Assessment Act 1997 Section 118-200

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. Due to recent changed to section 118-195 of the ITTA 1997, the Commissioner now has discretion to extend the two-year period in the Act where: the ownership of a dwelling or 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 unforseen 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 for sale over the dwelling is unexpectedly delayed or falls through or circumstances outside the beneficiary or trustee's control. In your case, the deceased's dwelling was not disposed of within two years from their death due to your medical condition, your spouse's accident, their subsequent operation after the accident and the other beneficiary's medical conditions. We acknowledge that these medical conditions made it difficult to dispose of the dwelling but these events occurred within two years of the deceased's death. The property was taken off the property market for a period to undertake major renovations to improve its value and it was not listed again until the year in which it was disposed of. The property was disposed of more than three years after the deceased date of death. Based on the information you have provided, we believe that you do not meet the criteria in which the Commissioner may exercise his discretion to extend the two-year period in which a deceased's main residence must be disposed of. Therefore, the Commissioner does not consider that it is appropriate to exercise to extend the two-year period in which a deceased's main residence must be dispose of. The normal capital gains tax (CGT) rules will apply to the disposal of the property. CGT The most common CGT event, CGT event A1 occurs when you dispose of an asset to another entity. The time of the event is when you enter into the contract for sale, if there is no contract - when the change of ownership occurs. You make a capital gain if the capital gain if capital proceeds from the CGT event are more than the asset's cost base. You make a capital loss if your reduced cost base is greater than your capital proceeds Deceased estate - main residence Special rules apply of the asset was the deceased person's main residence. If you inherit a deceased person's property, you may be exempt or partially exempt when a CGT event occurs to it. For more information on how CGT applies please see the enclosed information. This information has been taken from the Guide to capital gains tax 2011-12 (NAT 4151). Information is also available on our website - www.ato.gov.au.

Subject: Capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption: Question : Will the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) in your particular circumstance?