Private ruling: Capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption
Published: September 2013
Ruling period: To 30 September 2014

Ruling: Q1:  | A1:  | Q2:  | A2: 

Relevant facts and circumstances: Your parent (the deceased) purchased a share of a residential building in foreign country (the property). The deceased's share of the resident building consisted of a flat within the property. The deceased established the flat as their main residence prior to 20 September 1985. Approximately four years ago, an authorised representative on behalf of all the registered owners of the property entered into a development agreement with a builder to demolish the property and rebuild another in its place (the new residential block). Approximately two years ago the builder commenced the new residential block. In the same year the deceased died and as a beneficiary of the deceased's estate you inherited the property. The new residential block was not completed at the time of the deceased's date of death. When the new residential block is completed, a new ownership certificate will be issued to you. The property has never been used to produce assessable income and nor is it capable of being used to produce income. When the deceased died, you were unable to dispose of the property because the new residential block not completed. You have been advised by the builder that the new residential block may be completed late this year. You will dispose of the property upon completion of the new residential block. You have provided copies of the following 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: · the deceased's death certificate · TD 96/18 Taxation Determination - Income tax: capital gains: if after 19 September 1985, a person makes a capital improvement to a pre-CGT Asset, does subsection 108-70(2) of the Income Tax Assessment Act 1997 deem the improvement to be a separate CGT asset on the person's death or on any later disposal by the legal personal representative (LPR) or a beneficiary · Commonwealth Consolidated Acts - Income Tax Assessment Act 1997 - Sect 118.195 · Commonwealth Consolidated Acts - Income Tax Assessment Act 1997 - Sect 108.70 · Commonwealth Consolidated Acts - Income Tax Assessment Act 1997 - Sect 108.80.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-55 | Income Tax Assessment Act 1997 Section 108-70 | Income Tax Assessment Act 1997 Section 118-195

Reasons for decision: Summary: 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, you have not been able to dispose of the property due to the construction of the new residential block being undertaken on the land will not be completed until late this year. We believe the completion of the new residential block is outside your control. Accordingly, you 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. The Commissioner considers that it is appropriate to exercise his discretion on this occasion and allow up until a specified date, to dispose of the property. | Detailed Reasoning - CGT: You make a capital gain if a CGT event occurs to a CGT asset. The disposal of the property will be a CGT A1 event. | Detailed Reasoning - Separate asset: Under subsection 108-55(2) of the ITAA 1997, it states that a building or structure that is constructed on land acquired before 20 September 1985, is taken to be a separate CGT asset from the land if: · you enter into a contract for the construction on or after that day, or · if there is no contract - the construction started on or after that day. As the land was a pre-CGT asset and the deceased entered into a contract with the contractor after 20 September 1985 for the construction on the new residential building, the newly constructed flat would have been considered to be a separate CGT asset in the deceased's hands. However, due the deceased's death, you are taken to acquire the land and dwelling on their date of death.

Subject: Capital gains tax - deceased estate - Commissioner's discretion to extend the two-year period - main residence exemption: Question 1: Would the Commissioner exercise his discretion under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) in your particular circumstance? | Question 2: In the deceased's hands would the newly constructed residential flat be considered a separate capital gains tax (CGT) asset from the land?