Private ruling: CGT - deceased estate
Date of advice: 20 January 2016
Published: March 2016
Ruling period: Year ended 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 interest in the property that you acquired from X's estate and allow an extension of time to the two year period? | A1: No. | Q2: Will the Commissioner exercise his discretion under subsection 118-195(1) of the ITAA 1997 in relation to the interest in the property that you acquired from Y's estate and allow an extension of time to the two year period? | A2: Yes.

Relevant facts and circumstances: X acquired a dwelling (the property) prior to 1985. X passed away during the relevant income year. The property had been X's main residence. The property was also occupied by Y for an extended period prior to X's death and Y continued to occupy the property following X's death. Y suffers from a medical condition. X's will, provided that you and Y were to hold the property as joint tenants. X's will, did not include a provision of a life interest or a right to occupy the property to Y. Y passed away during the 20XX-XX income year. Y died intestate. You applied for Letters of Administration in relation to Y's estate. You were entitled to receive Y's interest in the property under their estate. The property has not been used to produce assessable income. As the title to the property had actually remained in X's name you were required to liaise with the State Trustees in order to facilitate the transfer of the property title into your name. This was not finalised for some time. You have since been in the process of repairing the property to a saleable condition as it was run down and had smoke damage inside the dwelling. You have been liaising with real estate agents and intend to sell the property as soon as possible.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: 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 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 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). 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. 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. In your case, you acquired two separate interests in the property; one from X's estate and the other from Y's estate. As each of these interests is considered a separate asset for capital gains tax (CGT) purposes, we need to consider the discretion for each of these interests separately. | Detailed Reasoning - Interest acquired from X's estate: On the date of X's death, you acquired a half-share interest in the property. Although the property was acquired by X prior to 20 September 1985, you, as a beneficiary of their estate, did not dispose of the property within two years of their death. Accordingly any capital gain made on the disposal of this interest in the property can only be disregarded if the Commissioner exercises his discretion to extend the two year period. As explained above, in considering the discretion the Commissioner is expected to take into account the period of time the trustee or beneficiary has held the property. In your case, you have requested a significant extension that is well in excess of the period of time the Commissioner would normally exercise the discretion. While we acknowledge Y's illness, it was not a circumstance that was unforseen or that arose during the relevant two year period. Additionally, we consider your decision to retain the property to enable Y to continue to reside there a private family arrangement rather than an issue in finalising X's estate. Accordingly the Commissioner will not exercise his discretion to extend the two year period in relation to the interest in the property that you acquired from X's estate. | Detailed Reasoning - Interest acquired from Y's estate: Following Y's death you acquired the remaining half-share interest in the property. Y had occupied the property as their main residence at the time of their death and it had not been used to produce assessable income. However, as you have not disposed of the property more than two years following their death, you will only be able to disregard any capital gain made on this interest in the property if the Commissioner exercises his discretion to extend the two year period. Y died intestate and left the property in a state of disrepair. Maintenance and repairs were required to bring the property up to a saleable state. Additionally, failure to have the property legally transferred out of X's name following their death resulted in a delays in you being able to have the property title transferred into your name. Taking the above factors into account, in addition to the length of time in question (you have requested an extension of approximately two years) the Commissioner will exercise his discretion to extend the time period.