Private ruling: CGT - deceased estate - extension of time
Published: October 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

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 to 23 April 2014? | A1: Yes. | Q2: Can you disregard any capital gain or loss that arises from the disposal of the property under section 118-195 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: The deceased passed away, intestate, a number of years ago. Letters of administration were granted almost a year and a half after the deceased died. The assets of the estate consisted of a half share in their main residence and an investment property, and superannuation entitlements. Prior to their passing, the deceased purchased two properties jointly with their friend (the co-owner). They treated one of the properties as their main residence. The main residence property was purchased on after 21 September 1985. The Estate has been under dispute with the Administrators having to defend the assets of the deceased with the co-owner of the properties held. The matter has been through the Courts, particularly with the co-owner trying to prove they were in a relationship with the deceased. The Court determined the pair were not in a relationship. The co-owner of the properties disputed the share of the Estate they was entitled to, in respect of the properties. The co-owner also lodged a claim with the trustees of the deceased's superannuation fund as to their entitlement. The matter was eventually referred to the Superannuation Complaints Tribunal. The dispute concerning the superannuation was not resolved until almost four years after the deceased died. The investment property was sold by agreement in almost four years after the deceased died. A settlement agreement had not been reached at this time as to how the net proceeds were to be divided. An agreement was reached two years later. Terms of Settlement between the co-owner and the Administrators were reached in respect of the main residence in eight years after the deceased died. Pursuant to the agreement, a sum of money was received on settlement. The property has never been used to produce assessable income, and was lived in by the co-owner after the deceased passed away. The property was sold to the co-owner.

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

Reasons for decision: Summary: As per subsection 118-195(1) of the Income Tax Assessment Act 1997 (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 choose to 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 the beneficiary held it. In this case, the delay caused by the ownership of the estate's assets and administration being challenged was outside of your control. This prevented you from disposing of the property within the two year time limit. Although it took almost eight years for the matter to be resolved, the matter was settled as soon as practicable by the Administrators of the Estate. 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 to 23 April 2014. As a result of extending the two year time limit, you will satisfy all of the conditions contained in section 118-195 of the ITAA. Accordingly, you can disregard any capital gain or loss that arises as a result of the disposal of the property.