Private ruling: Capital gains tax
Date of advice: 23 December 2015
Published: March 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion to extend the two year exemption period for CGT on the sale of an inherited dwelling? | A1: Yes

Relevant facts and circumstances: The deceased person purchased their main residence prior to 20 September 1985. The deceased person passed away after 20 September 1985. Their main residence was left to you and X other beneficiaries in their will. You wished to sell the property within two years but there were delays beyond your control, hence prevented you from selling the property. The property was transferred from the deceased estate to the beneficiaries and sold slightly more than two years from the date of death of the deceased person.

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

Reasons for decision: Summary: Under section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) you can disregard any capital gain or capital loss that you make from the disposal of a dwelling that passed to you as the trustee or beneficiary of a deceased estate provided certain conditions are satisfied. Section 118-195 of the ITAA 1997 would allow you, as the beneficiary, to disregard any capital gain or capital loss in relation to the former residence of the deceased person if either of the following applied: (1) you disposed of your ownership interest within two years of the deceased's death, or within a longer period as allowed by the Commissioner; or (2) if you did not dispose of your ownership interest within two years, the dwelling was, from the deceased's death until your ownership interest ended, the main residence of one or more of: (a) The deceased's spouse at the time of their 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) you, as a beneficiary of the estate In your situation, neither of the above categories applies to exempt you from capital gains tax. However, under section 188-195 of the ITAA 1997, the Commissioner has discretion to extend the two-year time period in relation to CGT events that happened in the 2008/09 income year and later income years. The explanatory memorandum (EM) to the Bill that added the discretion to section 118-195 the Tax Laws Amendment (2011 Measures No 9) Bill 2011 , includes the following 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 your case, you wished to sell the dwelling within two years of the date of death of the deceased person. However, you were prevented from doing so by the actions of others. This was beyond your control. The Commissioner will therefore grant an extension to the two year period for the exemption from CGT to apply. You therefore do not have a CGT liability in respect of the inherited dwelling.