Private ruling: Capital Gains Tax
Published: January 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion to extend the 2 year period for the exemption from capital gains tax (CGT) for main residence acquired from a deceased person? | A1: Yes.

Relevant facts and circumstances: The Deceased owned a property which was their principle place of residence. The Deceased passed away in 2010. The Executors applied for Probate of the deceased's last Will and Codicil. The Deceased's Codicil allows the deceased's relative A, and any of their particular family, to continue to reside in the property for six months after the deceased's death, if they were residing in the property at the time the deceased passed away. Relative A filed a caveat preventing the court from granting probate of the Will and Codicil. Relative A also made an application to the Court for a family provision claim. In August 2011 by Consent Orders the Caveat was withdrawn. In September 2011 Probate of the Will and Codicil of the deceased was granted by the Court. Relative A continued litigation and in first half of 2013 a judgment was given from the Supreme Court. The Court order allowed Relative A to remain in the property for another X months. In late 2013 the property was sold. The sale settled in December 2013.

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

Reasons for decision: Summary: Section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997) disregards capital gains and capital losses made by a beneficiary or a trustee of a deceased estate from one of the specified CGT events in relation to a dwelling or the taxpayer's ownership interest in the dwelling. The exemption only applies if certain conditions are satisfied. A full exemption is available if the dwelling was the deceased's main residence just before the deceased's death, it was not being used to produce assessable income at that time and the individual disposed of the dwelling (e.g. by sale) within two years of the deceased's death, or within a longer period allowed by the Commissioner. 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 of the ITAA 1997, 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 (e.g. 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. Having considered the relevant facts, the Commissioner is able to apply his discretion under Section 118-195 of the ITAA 1997 and allow a reasonable extension to the time limit. The period of extension has a reasonable explanation given the circumstances and an extension will be granted until the December 2013.