Private ruling: Capital gains tax
Published: June 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2011

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: Yes.

Relevant facts and circumstances: Your relative passed away during the 2011-12 financial year. Under your relative's will, you inherited a property. The property was your relative's principle place of residence and was purchased before 20 September 1985. Probate was granted during the 2011-12 financial year. The will was then contested in the Supreme Court. The party contesting the will sought further provision out of the estate. The matter was resolved at mediation, without the need for a final hearing in the Supreme Court. The terms of the settlement were negotiation at mediation held in 2012 and the matter was finally settled in early 2013. Since this time, you have prepared the property for sale and placed it on the market. The property has never been used to produce income.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 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 your relative passed away the property passed to you as a beneficiary of the estate. The property was acquired by the deceased prior to 20 September 1985 and it was their main residence just prior to their death. The property was sold outside the two year period outlined in subsection 118-195(1) of the ITAA 1997. Therefore, you will only be able to disregard the capital gain from the sale of the property if the Commissioner grants an extension to the 2 year time limit. 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. 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 2 year time limit.